Last Mile Delivery: Does it Cost Most to Run an ICE or EV Fleet?

Why is it important to electrify last mile delivery fleets?

Firstly, we need to understand why it is so important that delivery vehicles are electrified. The last mile is the most expensive element of logistics, accounting for up to 40% of total supply chain costs. Experts have also claimed that last mile delivery is responsible for up to 30% of a city’s carbon emissions. If electric vehicles (EVs) are indeed cheaper to own and operate, then electrification is the right thing to do from both an environmental and financial perspective.

Going green is no longer an option, for two primary reasons. Firstly, corporations must report on their emissions and demonstrate how they plan to reduce them. This extends to smaller operators who work for the big boys – if this describes you, expect your major clients to start asking how you will reduce emissions generated by the work you do for them.

Secondly, it is great for business. Surveys have continued to show that consumers want their goods to be delivered sustainably – if you want to keep their custom, you need to give them what they want.

Moving to a TCO model

TCO stands for total cost of ownership, and it is this whole-life approach that enables fleet operators to make informed decisions about the true costs of their vehicles.

The main idea is to look beyond the ticket price when you buy or lease vehicles. Along with the purchase/lease costs, look at ‘fuel’, servicing and repair, residual values, and tax.

Purchase / lease costs

Despite the Plug In Van Grant helping to reduce the costs of electric vans, diesel and petrol remain cheaper. However, EV prices have become more competitive and are forecast to continue falling.

Winner:  ICE

“Fuel” costs

Even based on current energy prices, it is far cheaper to power a van with electricity than it is with diesel or petrol. This is true for return-to-base operations where the vans go back to a depot at night, or even the driver’s home. Workplace or home charging is the most cost-effective way to run EVs. However, if your vehicles need to access the public charging network, bear in mind this will reduce the savings you make compared to paying for diesel.

Winner: EV

Service, maintenance, and repair costs

There are more than 1,000 moving parts making up an ICE vehicle, while an EV typically has fewer than 50. While this is a simplified view, it does indicate that service, maintenance, and repair (SMR) costs for EVs should be lower.

In fact, some fleet managers have reported savings of up to 30% on EV SMR costs, compared to ICE vehicles. Watch out for cost creep on SMR if it is included in your leasing package – increasingly, fleets are “unbundling” SMR as they are finding it more expensive through their leasing company. Sometimes it pays to go direct to the SMR specialists.

Winner: EV

Residual values

Residual values for EVs are challenging now, due to a lack of confidence in the second-hand market and the fact that fleets and leasing companies tend to dump high volumes of used EVs onto the market in a short space of time.

This is expected to improve but at present, ICEs hold their value better than EVs.

Winner: ICE

Tax

There are several tax benefits to buying and operating electric vans. Firstly, if you purchase rather than lease, you can claim 100% of a new e-van’s cost in its first year, rather than having to amortise it. Secondly, vehicle excise duty – also known as road tax – is set at zero for EVs. Thirdly, if your employees drive the vans for personal use, the Benefit in Kind (BIK) rate is also set at zero.

Winner: EV

Which has the lowest total cost, the electric van or diesel van?

The clear winner here is the electric van. It has a higher ticket price and lower residual value than the diesel equivalent. But other factors such as running costs, tax benefits and SMR savings make EVs more attractive over their lifetime in your last mile delivery fleet.

Where can I find out more information?

Mer is an expert in providing EV charging infrastructure for last mile delivery, working with clients including IKEA, DX Delivery and Milk & More.