EV vs ICE: Are electric cars worth it?

Electric vehicles vs petrol vehicles – what are the key differences?

1. EVs are more energy efficient

The average Internal Combustion Engine has a fuel efficiency of only 40% – with 60% is lost via heat and friction. As a result, ICEs consume far more energy travelling the same distance as an EV.

2. EVs Are Smoother To Run

EVs are well known for running smoothly and silently. Using an electric engine instead of an exhaust system, they naturally operate with less noise pollution and have a smoother acceleration and deceleration.

On top of this, their lower centre of gravity provides better handling, comfort and responsiveness. EVs also tend to use less energy in stop-and-go city traffic.

3. EVs tend to have lower maintenance costs

The relatively high initial outlay cost of buying an EV can be offset by reduced costs in other areas such as maintenance. EVs have far less moving parts and therefore cost less to maintain, and experience less wear and tear.

That being said, EVs do still require some maintenance. Brakes, Tyres and other consumables should be inspected periodically, in line with manufacturer’s instructions. These inspection schedules tend to occur less frequently than combustion engine vehicles as EVs are lighter on tyres and brakes due to the effect of regenerative braking.

Most EVs can be supported by main dealerships. However, independent service centres equipped to service EVs are currently few and far between.

4. Electricity is cheaper than petrol

It’s much cheaper to fuel your car with electricity versus petrol in the UK. Especially as you can charge your car at home – and install solar panels to generate your own electricity if you wish.

Electric cars are even capable of turning into generators and creating their own energy through regenerative braking (using the energy expanded when slowing the vehicle to recharge).

5. It’s better for the environment

Transport is responsible for 34% of C02 emissions in the UK, with the large majority coming from road transport specifically (source). Yes, there is still an environmental cost of the production of EVs but these vehicles don’t emit CO2 or greenhouse gases and so their lifetime carbon footprint is much lower. For example, a recent Reuters study found that a Tesla Model 3 would need to be driven for 13,500 miles (21,725 km) before it does less harm to the environment than a Toyota Corolla (source).

Prolonging life and reducing negative health impacts are another bonus. Thousands of people with health conditions (such as asthma) stand to benefit from the cleaner air. One study in China suggested 17,500 deaths could be prevented if just over a quarter of privately owned cars and a slightly larger share of commercial vehicles were electric.

EV vs ICE: the cost of ownership

Direct Line has calculated annual running costs for EVs to be an average £1,742 per year, or £33.50 per week, versus £2,205 per year, or £42.40 per week for ICEs – a difference of 21%.

And it’s estimated that conventional fleets can cut their fuel costs by around 80% by switching to pure EVs.

Aside from insurance – which can be 25% higher for EVs due to production costs – the overall cost of owning an EV is generally less than an ICE vehicle.

So why are the costs cheaper?

Cheaper to refuel

Compared to petrol and diesel, refuelling a car with electricity is more cost effective. Assuming the average EV travels around 3.5 miles per kWh – 100 miles would cost around 5p per mile. However, with petrol costing around £1.24 per litre, a petrol-powered car would cost roughly 11p per mile.

Cheaper to maintain

As previously mentioned, EVs have less moving parts than ICEs and therefore lower maintenance costs. Annual tax and maintenance costs are estimated to be 49% lower than for ICE models.

Grants, incentives & exemptions

There are also various government grants and incentives to help reduce the costs of EV ownership. Although the discounts available aren’t quite as good as they used to be, drivers can apply for a plug-in car grant, potentially receiving £2500 off the purchase price for vehicles up to £35,000.

EV owners are exempt from ULEZ charges, which as of October extended up-to (but not including) the North and South Circular roads – which can cost as much as £12.50 a day. There are also further savings on road tax (0% for pure EVs) and other congestion charges. Additionally, company car drivers currently only pay 1% Benefit in Kind (BIK) tax in the 2021/22 financial year.

Less depreciation

AutoTrader found that a 1-year-old EV only loses 12% of its value versus a 24% loss for ICEs. As used EVs are becoming more popular, their residual value has increased. On the contrary, petrol cars have a lot more depreciation, as do diesel vehicles, due to reputation damage in recent years.

Comparative example

Drive Electric recently calculated several EV and ICE comparisons to understand the difference in cost ownership. Taking two popular vehicles below (source).

A fully electric Hyundai Kona can save around £1,081 compared to its petrol equivalent, while an electric Mini can save approximately £874:

Why should you and your employees consider an EV as a company car?

Given current low BiK rates and zero road tax for EVs, leasing EVs to your employees via a salary sacrifice scheme can provide a lucrative benefit.

Low road tax

All vehicle owners must go through the process of taxing their vehicle, but because Vehicle Excise Duty (VED) is calculated according to CO2 tailpipe emissions for all vehicles registered since March 2001, most EV owners will be exempt from any charge. Pure EVs with a list price below £40,000 pay nothing (vehicles over £40,000 are subject to premium rate tax of £320). Depending on emissions, plug-in hybrid are subject to a £10-140 charge in the first year of ownership, and a £140 annual charge.

Low BiK rates

Benefit in Kind (BiK) Rates were as low as 0% for the 2020/21 tax year, and although they have now moved up to 1% – it’s still a great bonus. For the 2022/23 financial year, the BiK rate will rise to just 2% – and stay this way until April 2024. So it’s still a massive area of saving, compared to ICEs which can incur BiK rates up to 37% based on their emissions.

Salary sacrifice scheme

Many businesses (such as Mer) are now offering their employees the opportunity to lease their EV via a salary sacrifice scheme – i.e. pay for it in a similar way they make their pension contributions. Such an arrangement will involve a business purchasing/leasing an EV as a business expense and passing the cost straight onto the employee. They can deduct the cost of the EV from the employee salary pre-PAYE, where tax and NI is taken. So, the employee pays less tax and the net cost of leasing the EV is reduced – all at no cost to the employer, other than administration time.

Putting it into context a 20% standard rate taxpayer will save £20 in tax for every £100 of monthly lease, with 40% taxpayers saving £40. Additionally, those earning less than £4,189 can save £12 in National Insurance, or £2 a month if earning above this threshold.