In 2015, battery-electric vehicles in Japan, the UK, California and Texas were slightly cheaper than traditional gas or diesel vehicles, as long as you compare all of these vehicles to their total cost of ownership (TCO).
While low-emission vehicles are often more expensive in sticker price than internal combustion engine (ICE) vehicles, low-emission vehicles become more cost-effective over time if you factor in the fuel costs you’ve avoided, along with any tax breaks and incentives. A group of researchers from the University of Leeds tracked the TCO of low-emission vehicles between 1997 and 2015 in Japan, the UK, California and Texas. In 2015, in particular, fuel costs and subsidies were so high in all four regions that battery electric vehicles (BEVs) were generally cheaper than combustion engine vehicles by a small margin.
The TCO for hybrid electric vehicles (HEVs) was still higher than traditional vehicles in all regions, as those cars receive fewer subsidies and still require fuel, unlike all-electric vehicles. Plug-in hybrid electric vehicles (PHEVs) were more expensive than any type of vehicle in all regions except Japan, where generous subsidies cut the price significantly.
The researchers caution that the results do not necessarily apply to other regions, because both prices and local subsidies differ so widely. But the results could help other states and countries determine the price of subsidies or fuel taxes. California and Texas were chosen because they have similar average incomes, but California’s long history of supporting low-emission vehicles makes such cars more common there. In Japan, the market share of hybrid vehicles is high, while in the UK low-emission vehicles are relatively scarce despite high gas prices (due in part to the prevalence of cost-efficient diesel vehicles).
The study focused on five comparable vehicle models. It included data on the Toyota Prius (a HEV), the Toyota Prius plug-in model (a PHEV), and the Nissan Leaf Electric model (a BEV). To compare low emissions costs with internal combustion costs, data from Toyota Corolla was used in Japan, California and Texas; Ford Focus data was used for the UK.
The good news is that in all four regions surveyed, the total cost of ownership of low-emission vehicles fell between the year the car was introduced and 2015. Although the researchers mentioned regenerative braking, stop-start motors and “a new transmission system” ” because factors that increase production costs for low-emission vehicles, operating costs, lower fuel costs, and savings on taxes and maintenance all offset these. In general, the cost of the battery is the most expensive difference between an electric or hybrid vehicle and an ICE vehicle, but that cost has fallen quickly. Bloomberg New Energy Finance estimated that electric vehicle batteries will cost just $273/kWh in 2016 (PDF), compared to $1,000/kWh in 2010.
In this study, TCO was calculated based on an average annual mileage for each of the four regions: 6,213 miles/year in Japan, 10,400 in the UK, 11,071 in California, and 15,641 miles/year for Texas. Any kind of “cost” associated with range anxiety was ignored. “With a BEV range of more than 100 miles, limited vehicle range is not necessarily a problem for the average daily commuter, so it is appropriate to assume the same annual mileage for all vehicle types,” the researchers wrote.
In addition, they noted that “an average annual maintenance cost is included for each vehicle type. For electric vehicles, costs were found to be cheaper due to less wear on the brakes and fewer moving parts. The specific costs of the vehicle model come from CAPP automotive consulting.”
While low-emission vehicles still struggle to achieve true cost parity with ICEs, this study shows that tax incentives and government rebates can offset those costs. TCO also shifts as gas prices rise, so that should play a role in any subsidy program adopted by a government.
Are car buyers aware of TCO?
The researchers also sought to correlate the TCO of traditional hybrid vehicles with their market share. These vehicles have been mainstream long enough to see if the TCO can actually influence purchasing decisions.
What the researchers found was intuitive enough: the adoption of traditional hybrid vehicles is stronger when the TCO for hybrids is lower than that of conventional combustion engine vehicles. People bought more hybrids when government subsidies and/or fuel prices rose enough to lower their TCO below that of ICE cars. The cost of the car was more closely tied to adoption than to the price of fuel, except in Texas, where the average annual mileage was high.
But the researchers also noted that the TCO for hybrid vehicles varies the most of all the low-emission models they looked at, due to fuel price variability and region-dependent mileage metrics (if you drive a lot more, the fuel price will be a lot more for you). Still, the adoption rate correlated with this variability.
The researchers recognize that TCO is not the only factor in the decision to purchase a car. Brand loyalty, design and availability of fueling infrastructure all play a big role in that decision. Since these factors are difficult to track and ultimately somewhat subjective, the research team did not take them into account. In addition, the societal cost of emissions from fossil fuel vehicles was also not included in the cost of ICEs.
The roadblocks hindering the adoption of low-emission vehicles are detailed in part by research from earlier this year, when McKinsey & Company found that 30 percent of U.S. car buyers have considered buying electric cars, but only three percent actually have. bought one. 50 percent of people surveyed by the company said they weren’t sure how electric vehicle technology worked, which is certainly a factor that a competitive TCO alone cannot overcome.
The study also says that government subsidies should not last forever. In general, economists agree that once electric vehicle batteries reach $100/kWh, they will be cost-competitive with ICEs. “It is paramount that there is a phasing out of incentives once the technology has reached cost parity, especially when oil prices are low,” the researchers concluded.
Applied energy2017. DOI: https://doi.org/10.1016/j.apenergy.2017.10.089 (About DOIs).