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The Financial Case for EVs is Electrifying

Rising energy prices around the world have put the cost of EV driving in the spotlight. Managing Director of Mer UK, Karl Anders takes a pragmatic look at whether the financial arguments are strong enough to turn people away from electric vehicles and back into their petrol or diesel alternatives.

The Financial Case for EVs is Electrifying

Sales of electric vehicles (EVs) are booming. Electric car registrations continue to rise in absolute numbers with 38,116 newly registered battery-electric cars in September 2022. In that month, according to SMMT figures, EVs accounted for 16.9% of all new car registrations. And it’s a trend that is only going to continue as sales of new petrol and diesel cars will end in the UK by 2030.

Human nature being what it is, there is always resistance to change. When newspapers carry headlines that EVs could cost as much as petrol or diesel internal combustion engine (ICE) vehicles, there is bound to be some pushback from people who may wrongly interpret this as evidence against a move to EVs.

People seeing those headlines earlier this year – especially those without at home chargers – might be tempted to put their EVs back in the garage and go back to an ICE vehicle in the misguided view that it will be cheaper. Let’s bust a few myths about that, in particular by looking at the lifetime cost of running an EV.

Buy or lease – the choice is yours

Although the initial sticker price of an EV is higher than an ICE vehicle, there are economies in the total cost of ownership (TCO) or lifetime cost. Due to the high-ticket price of all new vehicles, few people pay cash up front these days. More than 90 percent of new cars are bought on finance, according to the latest Finance & Leasing Association statistics. So it is actually the cost per month that is far more important, not the sticker price on the forecourt.

According to Experian, 72.3% of new EV financing is through loans with the remaining 27.7% being leases. The RAC considers that electric leasing is likely to be the most affordable form of EV finance, putting the monthly cost for leasing an EV on a par with an equivalent petrol or diesel vehicle. The high resale value of EVs compared to ICE also affects the monthly rental cost of contract hire and personal leasing and this will increase over time as EVs dominate the market even more.

As transition speeds up, costs come down

As more EVs come onto our roads, we’re also going to see the up-front price paid come down and become more aligned to the cost of a new petrol or diesel car. Of course, there will be fewer and fewer new ICE cars coming on the market until they’re finally discontinued in 2030. Even new plug-in hybrids won’t be sold after 2035 as all new cars and vans will need to be ‘fully zero emission at the tailpipe’. This will create more value in the residual EV market. While demand for EVs massively outstrips supply at present, the price of new EVs will remain high. But as the transition gathers speed the cost will come down and people will replace their EVs with new models. That is going to have a major impact on the value of second and third hand vehicles over the next three or four years.

Lower running costs

If the EV is supplied by an employer, it’s good news from a tax perspective. In 2021, 49.3% of new cars in the UK market went into the fleet industry. With benefit-in-kind (BiK) tax rate on ICE vehicles being set by CO2 output, the BiK rate for zero emissions company cars was set at 0% in 2020-21. For the 2022-23 tax period, the Government set the BiK rate for EVs at 2% which is likely to last through to 2024/25 – still a fraction of the tax paid by petrol, diesel and hybrid car drivers.

A key element of the total cost of ownership discussion is the much lower servicing and maintenance cost of EVs. They simply don’t need to be maintained as regularly as ICE vehicles. EVs don’t have fuel systems, cooling systems, gearboxes, exhaust systems etc. so the service and maintenance costs, together with the ease of servicing, make the cost of running an EV less than a petrol or diesel vehicle. Plus, there’s the additional time that the ICE vehicle spends off the road being serviced and maintained in the garage.

Fuelling the discussion

There are so many other factors outside of the cost of energy that make running an EV a better financial proposition. For example, an increasing number of cities are introducing charges for polluting ICE vehicles, and EVs avoid these so lower the cost of ownership even further. When you look at the cost of charging an EV versus refuelling an ICE, the argument for EV holds up even more.

There’s no debate that the rise in electricity costs that we’ve seen this year have fuelled the discussion about the advantages of EVs over traditional vehicles. But petrol and diesel costs seldom remain stable and have fluctuated wildly in 2022. Research published by technology firm Mina has calculated that, based on 32,500 charging events, the cost per mile if using home charging is around 7p, and public charging is 16p. The cost of running an average petrol vehicle is 14.8p per mile and diesel at 12.3p per mile*, so powering an EV at home remains much cheaper. Clearly, the imposition of VAT at 20% on public charging significantly impacts the price and is something that the industry is keen for the government to address.

Keep the EV on ice

Even if the argument for putting your EV away and getting your old petrol car out of the garage is all about the financials, the economics just don’t bear this out. But, as many EV drivers point out, it’s not just about cost. Quite simply, driving an EV is more fun and less stressful than an ICE. Once people have a taste of EV driving, they rarely opt to return to the slower, noisier, dirtier experience of driving petrol and diesel vehicles. It also delivers an environmental benefit of reducing your personal carbon footprint, especially if you can power your EV with renewable energy.



*Based on data gathered June-August 2022