Looking beyond the purchase price: How a TCO analysis shows the real cost of an electric vehicle

Despite the upfront cost of an electric vehicle being higher than a diesel one, the total cost of ownership (TCO) can still be significantly lower. Calculating all the potential savings of electric and it’s return in investment can help make a better purchasing decision.

For many businesses, the biggest obstacle to investing in electric vehicles is the high purchase price. Despite the technology improving and battery prices falling, too often the difference between electric and diesel is too great. However, the return of investment can vary greatly from application to application, and in many instances, there is already a strong business case for choosing electric over diesel.

Here are some of the key areas where an electric vehicle can deliver lower total cost of ownership.

Less maintenance lowers electric vehicle cost
Since electric drivelines consist far fewer moving parts and components, this greatly reduces the need for maintenance. Fewer parts mean fewer potential faults and a reduced need for repairs and replacements.

“Virtually all of the various parts in a diesel engine that regularly need to be serviced, simply do not exist in an electric driveline,” says Irina Lioufko, Business Development Manager. “Servicing is still required but it’s nowhere near as often or as long compared to its diesel-powered equivalent. It's mostly visual inspections and diagnostic readouts.”

A lack of moving parts also makes electric drivelines simpler and more durable. “Depending on the application, an electric motor can provide somewhere between 15,000 to 50,000 hours,” says Irina.

In addition, there is a reduction in indirect costs, such as spare parts, transportation to workshops and downtime during servicing.

Cheap fuel and getting cheaper
Fuel represents the single biggest cost for any vehicle owner or operator. While prices can differ over time and location, electricity is nearly always cheaper than diesel. And all the current trends suggest the difference between the two will only widen. More and more governments are increasing taxes on diesel while simultaneously reducing taxes on electricity. 

Incentives, taxes and regulations
Fuel taxes are just one way governments and authorities are enticing people to shift away from using diesel. Stricter regulations and emissions standards can also affect the TCO of a diesel-powered vehicle, both directly and indirectly. At the same time, there are more and more new incentives such as tax breaks for business that use of cleaner, alternative fuels.

“Because of the EU’s Green Deal and Biden administration’s commitments, we are seeing a lot of different policies that are designed to force a shift away from fossil fuels,” says Irina. “These need to be taken into consideration when calculating the TCO – both current and upcoming regulations as well as recovery packages and infrastructure investments– because they can have a big impact.”

Drive cycles and charging infrastructure
How and where a vehicle operates, and access to charging facilities, also have significant bearing on the TCO of an electric driveline – especially if an investment in charging infrastructure is required. For this reason, vehicles that operate in remote areas such as agriculture and forestry, are less suitable from a TCO perspective (although a hybrid driveline could still be financially feasible). However, in low-energy demanding applications passing most of the time with idling or low engine loads where vehicles operate in closed environments with easy access to charging facilities, then the TCO is drastically improved.

“This is why we see such a high adoption rate in material handling,” says Irina. “The driveline required is relatively simple and does not require too much power, and there are plenty of opportunities to recharge. Ports, distribution hubs and airports are also perfect environments for electric vehicles. By replacing diesel equipment with battery electric, they can improve productivity and reduce fuel and maintenance costs.”

Watch this space
Electric drivelines and lithium-ion batteries are developing at a rapid pace. As the cost of batteries keeps decreasing, and their capacity improves, the TCO of an electric driveline will also improve. And as it does so, electric will become an attractive option for more and more businesses and applications. In short, even if the TCO of an electric vehicle is not cost-effective today, the pace of current trends mean that it could be very soon. It is well worth keeping an eye on upcoming developments, and always with a TCO mindset.

Irina Lioufko
is a Business Development Manager at Volvo Penta, who specializes in strategy and market intelligence, as well as business development and modeling for enhanced product offering such as Electromobility. She has been at Volvo Penta for two and a half years, where she has worked in the industrial segments. Prior to joining Volvo Penta, Irina has worked within the Volvo Group in a wide variety of areas including Strategy and Planning, Business Development & Transformation, Connected Services, Aftermarket and Innovation.