Electric Vehicle - TCO Analysis Pt. 1

When looking if an electric vehicle is the right type of car for you and your specific needs, one has to consider the total cost of ownership of the vehicle. The total cost of ownership, or TCO for short, represents all the costs associated with the ownership of a given vehicle. The obvious costs are the purchase price and the costs for the electricity. The less obvious costs are the depreciation costs, maintenance, road tax and potential subsidies.


The first cost you make on a vehicle: the purchase - Link


Purchase costs

Currently the purchase price of an electric vehicle is higher than a comparable counterpart with an ICE in it. The main reasons for this currently are, but are not limited to, the amount of electric vehicles being produced and the high costs involved with the production of batteries. If the number of produced electric vehicles would equal the amount of produced conventional cars more, prices of the electric vehicle will go down. Also, at the current state of technology, the battery is a costly item in the electric vehicle. When more companies are involved and more batteries will be produced, the prices for batteries are expected to go down as well. The price of an electric vehicle is the first item in the list for the TCO.


Filling up the tank, or the battery: more costs - Link


Fuel / Electricity costs

You can't go anywhere with a vehicle if you don't fill it up, for an electric vehicle this means charging it up by plugging it in. It makes sense to take the price of this charging and the price of the electricity used into account, especially when you want to make a fair comparison with for example a conventional car. The price you have to take into account strongly depends on the source that is used. If you plug it in in your garage and slow charge it from the wall socket, you pay the price the electricity company charges you. If you go to a fast charger, a bit higher rate may be applicable, unless the fast charge is offered as a service at for example a restaurant. Also, some people have the option to charge up their vehicle with the solar panels they have on their roof, making their electricity 'free'. Even though the electricity is considered 'free', there obviously are costs involved with installing and maintaining the solar panels.


Depreciation costs, where losing value is considered a cost - Link


Depreciation costs

Depreciation is the pehenomena in finance which leads to goods losing their value over time. If you purchase something new for 100 Euros and it will last for 10 years (economic life span), after 2 years it will have a depreciated value remaining of 80 Euros. For electric vehicles the depreciation value is still a matter of debate. For some the electric vehicle has an economic life span of 10 years or longer, for others the life span is assumed a lot shorter. The main reasoning supporting a shorter economic life span would be the expected life of the battery. Based on consumer experiences with mobile phones and laptops, batteries in general have an expected life span of 1 to 3 years. During this period the battery life of your phone or laptop changes noticeably. For the phone and laptop industry this leads to renewed sales and since those devices are relatively cheap, the system works. For electric vehicles, with a much bigger price tag (still), this would be rather inconvenient if the battery would only last 3 years and you would have to purchase a new vehicle again. If you want to take depreciation into account, carefully asses and decide on what you expect of the life span of the vehicle and the battery. In case of for example the Chevrolet Volt, you can also use their warranty for the battery as a starting point - 100.000 miles or 8 years, whichever comes first. For my sample TCO analysis I'll use the warranty/claim from GM of 100.000 miles or 8 years and expect no more from the battery.


In the next blog post I’ll continue with the TCO analysis and follow up with an example.