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FUNDAMENTALS OF \ EV MOBILITY
Addressing the common considerations facing fleets switching to e-mobility...
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“Fleets transitioning to EVs may need to rethink their energy procurement policies”
TOTAL COST OF OWNERSHIP AND THE COST SAVINGS OF EVS
Total cost of ownership (TCO) – also known as whole-life cost (WLC) – is a long-established way of determining the actual costs associated with operating a vehicle over its fleet life.
Used for cars and vans, it’s a far more effective alternative to using monthly leasing costs but is also equally important for outright-purchase vehicles, giving the most accurate forwards estimate of the real costs to the business.
It’s also a critical part of the transition to an EV fleet where there are many different factors to contend with compared to ICE cars. While list prices and lease rates are typically a lot higher for electric cars, there are consider-able savings on fuel and tax. Latest real-world data also indicates that service, maintenance and repair (SMR) costs for electric vehicles are almost half those of internal combustion engine (ICE) cars.
Running whole-life costs means fleets can compare the real-life running costs of vehicles over the long term, saving thousands of pounds – and hundreds of thou-sands for larger fleets.
ENERGY PROCUREMENT FOR BUSINESSES AND THE DIFFERENT OPTIONS
As with petrol and diesel for internal combustion-engined cars, power for electric cars forms a large part of the cost base.
This means that fleets transitioning to EVs, particularly larger corporates and commercial vehicle operators, may need to rethink their energy procurement policies to ensure they are minimising costs while also incorporating their wider decarbonisation strategy.
The UK energy market has been deregulated since 1989, delivering competition to drive down prices for consumers and businesses.
By working with the right suppliers, businesses can find the best contract to meet their needs, taking into account capacity, unit and daily charges, as well as sourcing greener energy if the company has ESG (Environmental, Social and Governance) or Corporate Social Responsibility (CSR) frameworks.
More and more businesses, both large and small, are turning to Power Purchase Agreements (PPAs). Effectively, a long-term agreement between a renewable developer and a consumer for the purchase of energy, PPAs enable businesses to decarbonise their electricity consumption while also benefiting from long-term pricing certainty. That’s a key consideration given the huge volatility seen in whole-sale power prices since 2019 and particularly over 2022. Options for PPA price models include fixed, floating or hybrid but fixed is the most popular.
UNDERSTANDING YOUR INFRASTRUCTURE REQUIREMENTS
As electric mobility becomes the new norm, workplace charging is fast ramping up as businesses recognise the benefits. Recent research indicates almost one in three (32%) businesses are planning to install EV chargers this year.
Having onsite charging opens up the accessibility of EVs to more employees while also cutting the cost and time taken for staff to charge compared to using devices. It’s also worth noting that there will always be a significant number of people who will never be able to charge up at home; workplace charging is a lifeline for those drivers to go electric.
Businesses can also use charging to provide a valuable service to visitors and even open it up to the general public, particularly at times when it’s not being used by drivers or customers, potentially providing another revenue stream.
When working out infrastructure requirements, companies should conduct a holistic review of their site to assess energy needs. This should look at current and future fleet size, vehicle capabilities and the operational business profile – are vehicles return to base or will some/all be taken home by staff? Will charging be done by day or overnight? Can you use smart charging or load management?
Businesses should also assess their current grid capacity against needs. For some fleets, it may also be worth looking at battery energy storage to support EV charging. This can negate the need for grid upgrades and help manage peak demand.
Other considerations include leasehold approval and renewable energy considerations – the latter again factoring in ESG and CSR commitments.
All this must be future proofed, planning for business growth and increased EV uptake, to ensure your workplace charging stands the test of time.
“While there is no denying that there are several further issues that make the EV transition an incredibly complex and nuanced challenge, businesses should prioritise understanding TCO”
Mark Main
EY UK Transport Lead
WHY TOTAL COST OF OWNERSHIP IS AMONG THE TOUGHEST CHALLENGES FOR THE UK’S EV TRANSITION
There are a range of complex challenges facing the UK’s electric vehicle (EV) transition, including a lack of charging infrastructure, consumer sentiment issues and limited range. However, based on experience of working with and advising large fleet operators and lessors, one of the most significant hurdles currently impacting EV sales growth is the total cost of ownership (TCO) challenges associated with EVs.
Relatively speaking, EVs are still in their infancy. However, we are seeing a rapid pace of change in battery and charging technology. This is causing certain vehicles to become obsolete very quickly, while accelerating depreciation for some models.
The TCO for EVs is a justifiably high priority for businesses we advise when considering key decisions around fleet electrification and the wider EV transition. Equally, our clients are keen to understand EV running costs and broader EV market trends before they electrify their fleets. While there is no denying that there are several further issues that make the EV transition an incredibly complex and nuanced challenge, businesses should prioritise understanding TCO, how it may change in the future, and how they can reduce TCO as part of their decision-making.
The market was initially expecting that EVs would eventually become cheaper to operate than internal combustion engine (ICE) vehicles but, in reality, that is not the case. This is driven by several different factors.
Firstly, we are seeing volatility in used EV prices, with a number of lessors reporting reduced profits on their portfolios. Over the last 12 months, residual value data aggregators have reported used EV prices have declined over 30% and are now typically at parity with or lower than their ICE equivalents. EVs are therefore proving more costly to operate for lessors and businesses than ICE vehicles due to higher levels of depreciation for the first user.
Secondly, from our experiences of advising fleet operators and insurers, we note that insurance for EVs can be more expensive than for equivalent ICE vehicles. This is due to the higher cost of repairing an EV. This also affects EV maintenance costs, with requirements for new tools and staff training for mechanics driving up costs associated with servicing and repairing vehicles. Brakes and suspensions are seemingly in need of replacement more frequently in EVs too, due to their heavier weight. Tyre costs are also more expensive for EVs than ICE equivalents, due to increasing vehicle weight and torque requirements.
In summary, the volatility in EV residual values, coupled with higher costs of insurance and servicing, is driving TCO up. Businesses will need to actively manage their costs and drive efficiencies in their fleet operations to ensure electrifying their fleet can be a financially feasible and sustainable move.
