Will the rising energy prices affect your decision to buy an electric vehicle?

Business Insights

The recent COP26 put a big spotlight on our need to reduce carbon emissions. One of the Government’s tactics to achieve this is by banning the sale of petrol and diesel cars by 2030, in favour of more environmentally friendly alternatives. Businesses are being enticed by attractive and tax efficient incentives to choose electric vehicles (EVs) for their fleets. However, with rising energy prices, how will it impact running costs and decisions to go ‘greener’. Ben Creswick, Managing Director at JCT600 Vehicle Leasing Solutions (VLS) discusses the issues and potential cost implications.

Many businesses have already realised the benefits of trading internal combustion engines (ICE) for more environmentally friendly options, and have started to move part, or all, of their fleets to plug-in hybrid electric vehicles (PHEV) or battery electric vehicles (BEV). And with the looming deadline to seize production of internal combustion engine (ICE) vehicles by 2030, there’s increasing pressure on businesses to make the move sooner rather than later.

While initial apprehensions over moving to EV such as cost, vehicle choice and charging infrastructure have been addressed, businesses are now facing new setbacks in making the move. Vehicle availability as a result of the semiconductor shortage is the first hurdle, with EV lead times currently estimated between 6 – 12 months. And then there are the concerns over rising energy prices.

From depleted stocks and a reduction in production/supply globally to higher demand and limited storage capacities, not to mention the issues with the Nord Stream 2 offshore pipeline, there’s a number of reasons causing the soaring energy prices. But will it have a major impact on the cost of running a fleet, especially when compared to running ICE vehicles?

First, we need to look at the current savings to be made from transitioning to an EV, then compare how that would be affected by a sharp rise in energy prices. The walk-up in ticket price from ICE to PHEV to BEV tends to be around 10% increase at each step, this is also impacted by changes in discounts (lower for PHEVs and even lower for BEVs) and residual values (higher for PHEVs and again for BEVs).

However, when considering the whole life cost (WLC) of the vehicle provision there are two elements that swing the calculation in favour of EVs. These elements are National Insurance on the value of the benefit (a fixed amount per vehicle provided to an employee with an element of private use and around £100 monthly saving from ICE to PHEV and a further £50 from PHEV to BEV) and fuel cost, which massively varies depending on business mileage and reimbursement policy.

The employee will see an even greater saving than the employer on the value of the benefit for a similar level of vehicle, with a saving of £265 from ICE to PHEV and a further £125 by moving to BEV.

Broadly what we are seeing, thanks to legislation supporting the uptake of EVs, are companies using the NI saving to increase rental allowances to allow for PHEVs and BEVs. WLC methodology achieves this by design.

An ICE vehicle (1601 to 2000 cc Diesel), using the latest Government Advisory Fuel Rate assumptions, costs 12.1 pence per mile (PPM) to run. This assumes an MPG of 51.3 and diesel at 136.8 pence per litre.

Under increasing pressure from the industry, we recently saw an increase in the Advisory Electric Rate to 5 PPM. This would mean the cost of electricity would have to go up 2.4X in comparison to the cost of diesel to reach parity in the PPM running costs.

Putting it into context of a real-life example, our Operations Director Paul Titchmarsh, is averaging 4 miles per kWh in his Kia e-Niro, and is currently paying 20 pence per KWh for electricity at home. Essentially 20p gets him 4 miles, so his PPM running cost is now 5 PPM. For electricity to run his Kia e-Niro to cost more than the fuel to run a typical diesel company car, the cost would have to increase by 242% in relation to the cost of diesel, or to 48.4 pence per kWh based on current diesel costs.

Thankfully the WLC of providing the vehicle and BIK savings for the employee mean that even as energy prices rise, in the current legislative landscape, BEVs will continue to be a cost-effective solution for your next company vehicle. Are you ready to make the move?

Visit www.jct600vls.co.uk