6 minute read 14 Dec 2021

Considering all aspects of the TCO is needed to successfully implement electric company cars into a futureproof mobility strategy.

How is the total cost of ownership driving your mobility strategy?

By Hendrik Serruys

EY Belgium People Advisory Services Partner

Creative mind and out-of-the-box thinker. Solution-driven and passionate business partner. Addicted to new technologies. Love to wine and dine.

6 minute read 14 Dec 2021

Considering all aspects of the TCO is needed to successfully implement electric company cars into a futureproof mobility strategy. 

In brief

  • Comparing cost price between electric vehicles and combustion cars is an important step in determining when to start your fleet electrification.  
  • Several parameters impact the total cost of mobility and affect both the employer and the driver.
  • A clear view of your current budget spend towards mobility is needed if you wish to implement a more sustainable or electric mobility strategy. 

In light of the European Mobility Week (16 – 22 September 2021) our dedicated teams share their inspiring learnings and refreshing insights. Make sure to check-in regularly for all the latest articles and prepare for your own mobility of the future.

When companies talk about the implementation of electric cars and the electrification of their fleet, one of the questions that often arises is related to the cost of these electric vehicles. Often the statement is that electric cars are more expensive than combustion cars.

Let’s find out whether an electric car is indeed more expensive or whether you should wait to implement the electrification of your fleet into your mobility strategy.

Current price difference and future outlook

Currently, battery electric vehicles (BEV) are still more expensive than their conventional diesel or petrol counterparts. When looking purely at purchase prices - without VAT as this can vary locally depending on legislation - a 100% electric vehicle is still 15 to 25 % more expensive, depending on the model. The difference is mainly caused by the extra production cost of the battery pack. On the one hand because it uses rare - and thus expensive - metals that are not yet being sourced on the same industrial level as recourses for conventional vehicles with internal combustion engines (ICE). On the other hand the higher production cost is caused by a lack of economies of scale. EV manufacturing is still in its first phases, hence economies of scale are not nearly enough being exploited to lower manufacturing cost.

Recent estimations by Transport & Environment and Bloomberg predict that - mainly because of applied economies of scale -  the manufacturing cost of battery electric vehicles will reach that of an equivalent conventional diesel/petrol car somewhere between 2025 and 2027. 

Furthermore, as the focus of automotive manufacturers is shifting more towards electric vehicles and more away from conventional drivetrains, the manufacturing economies of scale for diesel/petrol cars will go down. The new EURO7 norm is to be introduced in 2025, which adds the need for more sophisticated technology in cars with combustion engines. This will raise manufacturing cost and thus purchase prices of cars with a combustion engine.

Is the EV cheaper than ICE?

Will an electric car only be cheaper in the future or is it already so today? To provide an answer, a quick calculation needs to be made, taking into account all relevant parameters.

  • Lease or purchase price and residual value

    The main parameter with impact remains of course the purchasing price or lease price. Stronger discounts for ICE-vehicles vs electric vehicles provide the CO2 burning alternative with an advantage. On top of this, electric vehicles do need a charging solution which quickly amounts to 1.000 - 2.500 EUR. However, with the outlook of an ever weaker political framework for CO2 producing company cars, the residual values of EV’s are rising to strong heights. The net result is either a lower lease tariff or a cheaper net result when purchasing and selling your company car.

  • Real consumption

    The real consumption causes a lot of miscalculations. To have a correct comparison between EV and ICE cars, the real-world consumption needs to be considered.

    Car manufacturers have perfected their laboratory tests in such a way that the official NEDC (New European Driving Cycle) or even WLTP (Worldwide Harmonized Light Duty Vehicles Test Procedure) does not really reflect the real emission or consumption of a car. In order to use realistic numbers for a comparison, the consumption should be increased with approximately 40% for NEDC numbers and 20 to 25% for WLTP numbers. This increase is applicable for both combustion and electric vehicles. After all, consumption costs are the result of the actual used fuel and/or electricity, not the theoretical consumption.

    For the actual consumption cost, two average examples can be compared: an EV with a real consumption of 20kWh per 100km and a diesel car with a real consumption of 6 liters. With commodity prices of 0,26 EUR (VAT incl) for electricity and 1,50 EUR (VAT incl) for diesel, this amounts to 5,20 EUR per 100km and 9,00 EUR per 100km for the EV an diesel car respectively.

    On average, savings with an EV amount to 30 - 50% of the current diesel/petrol cost but will possibly be higher for larger cars and when driving a lot of kilometers. The cost of the consumption of the energy source is lower for EV cars.

  • CO2 contribution

    Another parameter which quickly produces savings of ±20 - 40 EUR per month in favor of the electric car is the federal CO2 contribution, also known as solidarity contribution. An example: For electric company cars this amounts to the minimum of 27,54 EUR / month vs 52,89 EUR / month for a diesel with 120g CO2/km. 

    An employer needs to pay less CO2-contributions for an EV car compared to an ICE car.

  • Fiscal deductibility

    The main incentive that the federal government is providing to advertise more sustainable solutions, is a maximal deductibility for the most sustainable solutions and a lowered deductibility for non-electric cars. 100% electric vehicles enjoy a flat rate of 100% deductibility while the deductibility for diesel/petrol company cars is calculated based on a formula that takes into account the fuel type and which gives a higher or lower result, depending on a higher or lower CO2-emission. As a result, the average deductibility for costs made for company cars with combustion engines is between 50 and 60%.

    As this deductibility is applicable on different elements in a lease contract such as leasing cost, fuel, insurances, VAT, ea the difference between an EV car and an ICE car could be significant.

Volvo XC40 Momentum Core T2 aut vs XC40 Momentum Core P8

Based on these parameters and as shown in the graphic, EV cars have a lower total cost compared to ICE cars, although the leasing cost itself could be higher. Therefore it is important to work and calculate with the Total Cost of Ownership (TCO) of a car instead of the leasing cost.

The TCO of a company car can be different per company and even within companies per different location due to the different aspects that should be taken into account for the calculation. Therefore a correct and precise calculation on a monthly basis is needed to have a full overview of your TCO as a company.

Future simulation 2026

As was communicated in April of 2021, company cars with a combustion engine will not enjoy any fiscal advantage whatsoever anymore and taxes for such vehicles will increase as from 2026. The net effect will cause those company cars to become more than 27% more expensive than they are today. However, a phase-out plan is built-in the legislative proposal where the fiscal advantages of company cars purchased or leased as from July 2023 will decrease gradually depending on the purchase or leasing date.

Hence, the timing of a purchase or signing of a lease contract will become utmost important. For example: when purchasing a diesel/petrol/plug-in hybrid on June 30 2023 at the latest, the current fiscality for that car will be applicable for maximum 5 years. Purchasing that same vehicle one day later will mean that it will follow the phase-out plan, meaning a gradual decline of fiscal advantage and hence a rising net cost. Additionally, these calculations for lease prices are based on the assumption that tariffs remain stable. However, with a quite negative outlook for all company cars with a combustion engine, leasing companies will review their residual value strategy sooner rather than later. In the end, vehicles purchased today are going to be sold in 2026 in a political landscape where non-sustainable vehicles are heavily financially punished. This creates opportunities to find attractive lease offers for electric vehicles.

BIK evolution and CO2 indexation

It is clear that there is an opportunity for companies to optimize costs with the introduction of electric vehicles in their fleet. Additionally, the driver will also benefit from a lower Benefit In Kind (BIK). Benefit In Kind in Belgium is calculated via a formula based on catalog value, motorization and CO2-emissions. When taking into account WLTP values, the gross savings when choosing an electric company car over a diesel/petrol alternative amount to approximately 50 to 200 EUR per month. In the legislative proposal of Minister Van Peteghem there is no intention of a change in BIK calculations nor the introduction of extra BIK for the least sustainable company cars. 

However, because there is a reference CO2 value being used in the BIK formula, current BIK amounts could rise year after year mainly for diesel/petrol. The reference number is based on the average CO2-emissions of vehicles sold in the previous year. The effect is that the lower the reference value, the higher the BIK for diesel/petrol. Because manufacturers need to comply to the CO2-targets set by the EU commission, the average CO2-emissions of sold vehicles will keep falling. This means that the BIK will rise by 5 - 15%, year-over-year.

Conclusion

With an increasingly interesting political and fiscal landscape for electric vehicles, there is no doubt they should be a central part of a modern car and mobility policy. Not only does the employer benefit from more stable costs, the driver will save some money as well. The best part is that this is not only a future development but that the advantages are there to grab as of today.

However, in order to correctly implement electric company cars, every aspect and parameter of the TCO needs to be considered. Therefore it is key to have a clear view of your current budget spend to mobility, including the TCO of you company fleet,  in order to be able to change your vision to a more sustainable or electric alternative.

This article was written by Hendrik Serruys and Bart Massin.

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Summary

While there is no doubt electric vehicles should be a central part of a futureproof mobility strategy, every aspect and parameter of the TCO needs to be considered when implementing electric company cars into the fleet.

About this article

By Hendrik Serruys

EY Belgium People Advisory Services Partner

Creative mind and out-of-the-box thinker. Solution-driven and passionate business partner. Addicted to new technologies. Love to wine and dine.