Calculating a True TCO for EVs

Deciphering true ownership costs for electric fleet vehicles is an evolving science. Remember when we were told that EVs’ higher initial costs than internal combustion engine (ICE) vehicles would be made up through lower vehicle maintenance and electricity costs?

Those lower operating costs have proven to be true, though savings can swing wildly based on various factors. They’re also mitigated by higher insurance costs, more frequent tire changes, and costlier parts repairs. 

For EVs, add to the equation non-vehicle-related expenses that involve infrastructure site preparation, charging equipment (EVSE) costs and ongoing maintenance, and software subscriptions to manage EVSE and vehicles.

EV incentives and rebates also play a crucial role in achieving cost parity with ICE vehicles, though they vary widely depending on the use case. And EVs’ residual values and uncertainty in the wholesale market cloud a true TCO analysis.

Richard Hall, head of ZappyRide EV Products at J.D. Power, has been analyzing these challenges too.

“The path to EV adoption is strewn with boulders. Even an initial investigation of the prospects might offer a severe case of sticker shock,” Hall writes, noting the considerably higher initial costs for EVs over ICE vehicles.

However, he sets out to demonstrate how overall TCO can favor EVs, using the aforementioned factors.

Essential Elements to Determine TCO for EVs

First, he describes the essential elements of an EV TCO analysis:

“It should include purchase minus incentives cost, maintenance, operational costs, insurance, residuals, ROI, and infrastructure charges,” he writes.

“Resale values and financing affect TCO, so the analysis must be capable of assessing the residuals of commercial EVs. The financing gap for EVs, especially regarding residuals, is a concern that influences leasing and financing costs.”

Predicted maintenance costs should be calculated based on mileage, considering the higher per-mile service cost for older vehicles.

Insurance is another important cost factor, so the analysis must include it and account for state insurance regulations.

He also asserts that the calculation should include emissions for EVs over their lifetime, and account for the electricity generation process, which varies by state, compared to the straightforward calculation for ICE vehicles. 

After the initial costs are tabulated, “To compare properly, one must see cash flow projections of year-by-year costs for both ICE and EV fleets and determine the breakeven point,” he writes.

EV TCO Analysis: 10 Pickup Trucks

Hall then breaks down two use cases for commercial vehicles, comparing EV costs to their ICE vehicle counterparts. 

The analysis was performed using JD Power’s TCO tool for fleets, powered by ZappyRide. Residual values were calculated using Argonne National Lab’s AFLEET tool (noting that values are based on polynomial formulas, not wholesale data.)

One example involves a fleet of 10 pickup trucks in the Chicago area, each driven 100 miles per day.

The purchase price for obtaining the battery-electric trucks is $79,164 higher than the costs for purchasing equivalent conventional pickups. However, EV subsidies of $19,848 help to defray some of that cost.

He calculates EVSE and EVSE installation to add about $66,000.

However, fuel cost savings over a 10-year period are substantial — $393,000. He calculates that maintenance of the electric trucks is estimated to cost nearly $340,000 less than maintenance for a fleet of 10 conventional trucks.

“The total savings over the decade are a very tidy $677,815,” he writes.

EV TCO Analysis: 100 Medium-Duty Cargo Vans

The second example is 100 Class 2b cargo vans in California. In this scenario, the EV fleet is a cost-saver in year one, and the savings keep growing for the 10 years the vans are in the fleet.

The most substantial savings over 10 years come in these areas:

• Fuel is $16.2M less for the EVs
• Maintenance is $5.7M less for the EVs
• California’s Low Carbon Fuel System credits should net $973,300 in savings

He writes that while some aspects of EV ownership in this scenario do cost more, the savings eclipse them. 

In this case, Level 2 charging infrastructure costs $661,600. The EVs cost more to acquire by $435,280, although incentives help the business recoup about $100,000 of that cost.

Insurance is also more expensive by $128,824.

According to this analysis, switching from conventional vans to battery-electric-powered vans will save this company $21.8 million over the 10-year period studied.

The Big Picture on EV TCO for Fleets

Hall writes that EVs aren’t always money savers, noting how electric school buses come with a much higher sticker price that is not recouped by fuel and operational savings over 10 years.

Looking at the big picture, “A data-driven approach resulting in numbers that project costs and savings over a specified time horizon is critical to getting it right,” he writes.

For fleets with multiple locations, modeling each location to provide breakeven curves and savings amounts will enable a strategic, phased transition to EVs based on available capital and grid capacity constraints.”

“The decision is left to the organization based on fact-based projections, with a focus on potential savings in both expenses and carbon dioxide emissions.”

What do you think? Is Richard Hall on the right track with his calculations?

My thoughts:

• As depreciation — the largest cost element in TCO — is determined by end-of-term residual values, any formula not based on actual sales data will make a true TCO elusive until then. This equation will be well in hand for passenger vehicles before it will for commercial vehicles.
• That said, depreciation is much less of a factor in a scenario analyzing commercial vehicles over a 10-year period in fleet, as the residual value of either an electric or fossil-fuel powered unit will be minimal. 
• This TCO model does not account for costs for EVSE upkeep or ongoing software system management.
• Until EVs have enough road miles to see how well their batteries perform later in life, maintenance costs will be hard to pinpoint. The standard eight-year, 100,000-mile battery warranty is the best-determining factor for now.  
• Given the volatility of the carbon credits market, factoring in LCFS credits could drastically change the cost outcomes.

Email me at [email protected] with any thoughts, and we’ll get Richard Hall to respond.