Sticker shock, in addition to range anxiety, is one of the reasons managers hesitate to purchase electric vehicles for their fleet. And yes, many EVs cost more up front than their internal combustion engine (ICE) counterparts. But focusing solely on the price tag is a mistake. In the end, EVs are often the better deal.
Calculate the total cost of ownership (TCO) to see whether an EV will save you money over the span of its life in your fleet.
What is total cost of ownership?
TCO is the total cost of buying and owning a vehicle, minus any money you get back. Here’s the formula in a nutshell:
- Add the purchase price, sales tax, financing and warranty costs, licensing and administration costs, insurance costs and the cost of operating and maintaining the vehicle over the time you plan to own it. Some fleets go as far as including the cost of vehicle downtime due to maintenance.
- Subtract any rebates or incentives and the money you will recoup when you write off depreciation and when you sell the vehicle.
Calculating TCO
An online calculator can help you figure out and total up the various inputs. For example, California utility company PG&E developed a tool specifically for fleets to help them compare the average cost of ownership of 64 EVs with similar gas vehicles. The Department of Energy has a simple vehicle cost calculator that uses basic information about driving habits to calculate TCO for makes and models of most vehicles, including EVs.
Factoring in how you will use the vehicle is critical to arriving at an accurate TCO. That’s where vehicle telematics comes in. It can provide data on miles driven/hours of use and battery and fuel (if any) usage. With fleet management software such as CalAmp, managers can access historical utilization trends that will help them calculate the TCO of new vehicles and benchmark the performance of their EVs compared to their ICE vehicles over time.
Factors driving EV TCO
Low maintenance and superior efficiency often make the TCO of EVs lower than you might think. Consider these factors.
Initial price. The initial price of an EV is often, though not always, higher than that of a comparable ICE. Premiums vary by model. A higher sales sticker also means more sales tax. But EV pricing is changing. BloombergNEF reports that falling battery prices could result in comparable purchase prices for EVs and ICEs by 2023.
Financial incentives. A variety of financial incentives are offered to encourage the purchase of EVs. The federal government and many states offer some rebates, although these may not apply to fleet vehicles. Check out the National Conference of State Legislature’s interactive feature Hybrid and Electric Vehicle Incentives to see if a fleet purchase would qualify for EV cost reduction programs.
Depreciation rates. For multiple reasons, most of today’s EVs depreciate faster than ICE vehicles. The lower range of older EVs, along with battery concerns and tax credits, factor in. iSeeCars examined the depreciation of EVs coming off lease after three years and found the average depreciation was 52.0% compared to 39% for gas-powered vehicles. Of course, depreciation rates vary with the vehicle model. Teslas lost just 10% of their value in three years.
Maintenance costs. An EV’s low maintenance costs often make up for its sale price premium. The drivetrain in an ICE has more than 2,000 moving parts, most of which will need maintenance or replacement, whereas an EV has only 20 moving parts. EVs will require new windshield wipers and tire rotations, but no oil changes or transmission or catalytic converter repairs. Their brake pads last longer due to regenerative braking. And there’s no need for emissions tests. According to AAA, the average EV costs about 6.6 cents per mile to maintain compared with 8.9 cents per mile for a gas-powered sedan, almost 35% more.
Battery replacement. Replacing an EV’s battery can cost $15,000 or more. But you may never need to do so, considering that Consumer Reports puts a battery’s average lifespan at around 200,000 miles. In addition, battery prices continue to drop significantly.
Electricity costs. Electricity costs vary by region, but as a general rule, the Department of Energy estimates that it costs about half as much to drive an EV as an ICE.The DOE’s eGallon calculator lets you compare the cost of “fueling” a vehicle with electricity vs. gas. It’s based on residential electricity rates, which are usually higher than commercial rates, so you’ll likely save more. According to this calculator, the average cost of a gallon of gas in California is $3.56 but the eGallon equivalent is $1.86. In Massachusetts, the costs are $2.63 vs. $1.96. Of course, charging at off-peak hours costs even less.
Most fleet managers have already begun to electrify their fleets or plan to do so. As the market share of EVs continues to increase, their TCO is likely to trend downward. In 2020 McKinsey & Co. estimated that EV TCO could be 15% to 25% lower than that of comparable ICE vehicles by 2030. Don’t let their sticker price fool you into thinking they’re not a good value. Discover how CalAmp's application can help you manage your EV or mixed fleet.