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 (ICE) has an efficiency of only around 40%, with 60% 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. As they use an electric engine instead of an exhaust system, they naturally operate with less noise pollution, whilst also having 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 are 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 the manufacturer’s instructions. These inspection schedules tend to occur less frequently than combustion engine vehicles as EVs are lighter on tyres and brakes because 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. It’s better for the environment

Transport is the UK’s largest emitting domestic sector. In March 2022, the UK Government shared that 91% of UK transport emissions come from road transport. Looking beyond the UK, transport is responsible for approximately 20% of global energy-related Co2 emissions.

Whilst there is still an environmental cost of the production of EVs, these vehicles do not emit CO2 or greenhouse gases, and so their lifetime carbon footprint is much lower.  The overall life-cycle emissions from EVs with a decarbonised power system could be 70-90% lower than those of ICE cars. A 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.

5. It is better for public health

Prolonging life and reducing negative health impacts are another bonus. An independent review of the UK government’s approach to net zero highlighted that air pollution contributes to between 28,000 and 36,000 deaths in the UK annually, before confirming that cars and taxis contributed 58% of domestic transport carbon monoxide emissions and 32% of nitrogen oxide emissions in 2020.

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

Despite rising electricity prices fuelled by Russia’s ongoing invasion of Ukraine, it is still cheaper to run an electric car whilst fuel prices remain above £1 per litre.

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.

Exemptions for EV drivers

EV owners are exempt from charges when travelling in certain areas, such as London’s Ultra-Low Emission Zone (ULEZ). Other than Christmas Day, the Zone operates 24/7 and covers all areas within the North and South Circular Roads. Vehicles not meeting the emission standards (unless exempt) are required to pay the £12.50 daily charge.

Bath, Birmingham, Bradford, Bristol, Portsmouth, Sheffield and Tyneside also have clean air zones of varying levels, whilst Greater Manchester is listed as having a zone in the future.

Additionally, EVs are currently exempt from vehicle excise duty (VED), though that is due to change from April 2025 as per the Chancellor’s announcement of policy changes in November last year.  Other benefits include those for company car drivers, who currently only pay 2% Benefit in Kind (BIK) tax until 2025.

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.

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

Given current low BiK rates and VED exemptions for EVs (until April 2025), 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. Depending on emissions, plug-in hybrid are subject to a £0-105 charge in the first year of ownership, and a £145 annual charge for subsequent years.

Low BiK rates

Benefit in Kind (BiK) Rates were as low as 0% for the 2020/21 tax year. Although they have now moved up to 2% until 2025, it is still a great bonus and massive area of saving compared to ICEs, which can incur BiK rates up to 37% based on their emissions. And, from 2025, the BIK tax rate increase will be limited to only 1% a year for three years.

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.