July 31, 2023
Total Cost of Ownership
The Total Cost of Ownership (TCO) is an important calculation to ensure that vehicle costs are being considered over the medium/ long-term and include all of the elements of running, fuelling and maintaining the car.
The Total Cost of Ownership
The Total Cost of Ownership (TCO) of electric vehicles (EVs) in the UK varies significantly depending on the model and make of the car, the type of financing, and individual usage. However, despite higher initial purchase prices, when factoring in costs over the lifetime of the vehicle, EVs can present a more economical alternative to traditional internal combustion engine (ICE) vehicles.
- Initial Financing: The upfront cost of new EVs tends to be higher than their ICE counterparts due to the cost of the battery technology. A brand new entry-level EV can cost around £25,000. However, various financing methods like leases, loans, and Personal Contract Purchase (PCP) deals can spread the cost over time.
- Charging Costs: The cost to charge an EV depends on several factors, including the cost of electricity and the battery capacity. On average, charging an EV at home with a standard electricity rate could cost about 32p per kWh. Therefore, charging a 60kWh battery (common in many EV models) would cost around £19. Public charging stations, while more expensive, still often come out cheaper than the cost of petrol or diesel.
- Maintenance Costs: EVs typically have lower maintenance costs than ICE vehicles. They have fewer moving parts and do not require oil changes, which significantly reduces the frequency of maintenance. It is estimated that an EV could save an owner up to 70% on maintenance costs over its lifetime.
- Insurance Costs: Initially, insurance for EVs was more expensive due to the higher purchase price and the specialized repairs needed. However, as EVs become more common and repair networks more established, insurance costs are gradually decreasing. As of July 2023, the difference in insurance cost between an EV and a comparable ICE vehicle was minimal.
In conclusion, while the upfront cost of EVs can be higher, the lower running, maintenance, and potentially insurance costs can result in a lower total cost of ownership over the lifetime of the vehicle.
What about the residual (future) value of used EVs?
The residual value, or the future value of a car after a specific period, is another critical component of the Total Cost of Ownership for EVs. The residual value can be heavily influenced by factors like vehicle reliability, demand, media coverage, technology advancements, and government incentives.
Historically, EVs suffered from faster depreciation rates than ICE vehicles, partly due to concerns over battery life and technology obsolescence. However, this trend is changing rapidly as EV technology improves, and consumer confidence grows.
In recent years, as more consumers and businesses are adopting EVs, demand for used electric cars has been rising in the UK, leading to stronger residual values. Additionally, advancements in battery technology and longer range capabilities are improving the longevity and thus the residual value of EVs.
Moreover, the UK government’s commitment to ban the sale of new petrol and diesel cars by 2030 is expected to have a significant positive effect on the future value of EVs. As this deadline approaches, the demand for electric cars, both new and used, is expected to increase, which should help retain and potentially even increase their value over time.
That said, the residual value of EVs can still vary significantly depending on the specific model and make of the car. For example, premium EV models from brands like Tesla tend to retain their value better than some lower-cost models, which can significantly impact the total cost of ownership.
To conclude, while there's a positive trend for the value of used EVs, consumers should carefully consider this factor, along with the initial purchase price, charging costs, maintenance costs, and insurance costs, to gain a comprehensive understanding of the total cost of owning an EV.
