Busting the myth: Electric Vehicle economics

While electric vehicles (EV) are far better for the environment than internal combustion engine (ICE) vehicles, one of the major factors for any individual or business to purchase EVs is the financial aspect.

New Delhi: This is the third article in the “Busting the Myth” series aimed at breaking down the popular myths surrounding the electric vehicle ecosystem. The series is a joint editorial initiative of ETEnergyworld, The Climate Group and Climate Trends.

While electric vehicles (EV) are far better for the environment than internal combustion engine (ICE) vehicles, one of the major factors for any individual or business to purchase EVs is the financial aspect. What many do not know is that although the upfront purchase can be more expensive, the overall cost equals currently available ICE vehicles.

Myth #1: Electric vehicles are more expensive than ICE vehicles

The cost of owning a vehicle can broadly be broken down into three categories – upfront cost (cost of purchasing the vehicle), fuel costs (cost of running the vehicle) and maintenance costs (cost of servicing and general upkeep). The total cost of ownership (TCO), however, shows that EVs today cost almost as much as an ICE vehicle for a usage of 1.60 lakh kms (warranty for popular electric cars). Here’s how:

Upfront costs: The average upfront cost of top 10 ICE vehicle models based on 2019 sales figures (India) is about INR 8 lakh (getting more expensive due to BS VI emissions norms), compared to the average cost of 3 most accessible electric vehicles (under INR 15 lakh: Mahindra e-Verito, Tata Tigor EV, Tata Nexon EV) at about INR 12.5 lakh.

Fuel costs: Considering recent numbers, the fuel cost of running the ICE vehicle comes out to about INR 3.6-5.6/km. For EVs, the cost of running comes close to INR 1/km driven. Thus, the potential for cost savings by switching to electric mobility increases with the kilometres driven.

Maintenance costs: The maintenance costs for ICE vehicles, (with at least one service recommended at every 5000-10,000 kms), comes up to about INR 90,000 for approximately 1.60 lakh kms. EVs, on the other hand, do not require oil changes, oil filter and spark plug replacements, and have much fewer liquids or moving parts. The maintenance cost of EVs therefore reduces to anywhere between half to a third as compared to ICE vehicles.

Thus, by running EVs more (about 150-200 kms/day), the difference in upfront costs could be bridged within 10-12 months (or as early as 8 months factoring in fiscal and non-fiscal government incentives), purely based on lower fuel costs. For corporates and fleet operators in employee transport, ride hailing or deliveries, utilization is already around this range. The transition to EVs thus makes immediate sense for them, lowering costs, travel time as well as Scope 3 emissions.

Further, if one factors in the income tax benefits of up to INR 2.5 lakh announced under Union Budget 2019, ‘Green Car loans’ by banks such as SBI, lower GST for EVs, proposed registration tax exemptions for electric vehicles as well as additional central and state-led incentives, electric vehicles are at parity or cheaper than their petrol or diesel counterparts for individual users as well, over their lifetimes.

Myth #2: With long charging times and short range, electric cars cannot run enough kilometres

Vehicles currently on Indian market supporting GBT protocol for charging, take about 90 minutes to full charge giving about 140-160 kms of real-world range. Other vehicles supporting faster CCS/CHAdeMO charging protocols require only 30-40 mins of charging for 250-300 kms of range. This is more than enough for a whole day of run, and with newer vehicles including improved technology, the range offered by EVs is continually increasing. With proper route and trip planning, fleet operators can incorporate an optimal balance of overnight slow charging with fast charge cycles, while also making sure the vehicle is always available for use when required. Companies can save anywhere between 5-30% in costs combining the use of EVs and route planning technologies.

Myth #3: Electric vehicles don’t make economic sense across all vehicle segments

Two-wheelers, three-wheelers, buses, trucks, or even tractors follow a similar logic to the calculations made in the above section. In each of those cases, upfront cost of EVs may be higher than their ICE counterparts today but continues to go down year over year, with advancements in battery technology and economies of scale.

Additionally, EVs account for significant savings in fuel costs and maintenance costs. Higher daily run of the vehicle translates to better fuel cost savings with electric vehicles: a principle which may be applied to particularly intensive mobility use-cases like deliveries, ride-hailing, and public transport systems. These use-cases deploy all kinds of vehicles from two-wheelers to buses and could be immediately electrified to enjoy cost as well as emissions savings.

Myth #4: India’s EV transition is not here yet

Most popular automakers currently offer a warranty of up to 1.60 lakh kilometres (or 8 years, whichever comes first) on their EV batteries. Over this warranty period, we find that 1.60 lakh kms comes out to driving an ICE vehicle for about 75 kms every weekday or 55 kms daily. While the average person or business whose daily travel distance is around this range should immediately consider the switch to electric, others should also be actively assessing their situation. With battery research continuously bringing down their prices and battery manufacturing enjoying greater economies of scale year-over-year, new, cheaper, better electric vehicles are in the pipeline from almost every major automaker.

Moreover, uncertainty around oil prices and corresponding impacts on petrol or diesel brings in volatility in every business or individual’s financial planning. Cess on petrol and diesel is expected to continue to increase as India strives towards reducing its carbon emissions intensity. The switch to electric can assure a degree of predictability of expenses involving mobility, since electricity tariffs are not revised too frequently. Thus, if a one is considering the purchase of new vehicles or replacing old vehicles, it would be prudent for them to consider transitioning to an electric vehicle.

What next?

A significant lever to further bringing down the costs on EVs in all segments (upfront, fuel and maintenance) is in the rapid increase in its purchase. The one roadblock that continues to put off buyers is in its high upfront costs. However, with rapid procurement of EVs at scale, this too can come down significantly. If upfront costs reduce, we will find that the EV – overall – will become a much more affordable, efficient and clean mobility option for people across income groups. It is heartening to see the government, both at the Central and state levels, push for EV-friendly policies. At the same time, the moment is ripe for businesses and individuals to drive market adoption, and fast.

Source : economictimes