Measuring (and Minimizing) EV Total Cost of Ownership

Photo by Matthew Staver / NREL

Driven primarily by sustainability goals, government agencies around the country are looking to increase the adoption of electric vehicles (EVs) into their fleets. These fleet managers are faced with trying to calculate the total cost of ownership (TCO) with many new factors, which can be daunting. We’ve analyzed more than 120 million miles of driving by government vehicles across the country to help fleet managers determine when an EV would be a good operational fit and provide a return on investment. The main differences are covered below to help fleet managers navigate TCO when electrifying their fleets.

Calculating EV TCO

Calculating an EV’s TCO is unique in several ways, including:

  • Higher up-front costs
  • Maintenance costs
  • Fuel costs
  • Resale value

Purchase Price & Incentives

EVs are typically going to cost more up front than a conventional vehicle. However, you may be able to take advantage of financial incentives offered by the federal government, state, or even your utility. Although many incentives are not available directly to governments, fleet organizations are using innovative options to take advantage of the incentives. For example, they can lease vehicles from entities that are able to monetize the federal tax credit and pass on some of the savings or, as Alameda County, Calif., did, negotiate pricing with dealers that passes on the entire savings to the fleet. A good resource for identifying incentives applicable to your fleet is the Department of Energy’s Alternative Fuels Data Center.

Maintenance Costs

Fleet managers should expect far lower maintenance costs for EVs. There are fewer moving parts to break, fewer fluids requiring servicing, less wear per mile on the brakes due to regenerative braking, and only minimal maintenance required for the battery, motor, and electronics. There is a big difference for fleet managers to be aware of — these savings apply to battery electric vehicles (BEVs). Plug-in hybrid electric vehicles (PHEVs) will require more maintenance than BEVs because they also have an internal combustion engine. New York City analyzed the maintenance costs for BEVs in its fleet and found that they were about 25% the costs of their ICEs.

Another concern we hear often is, “Will the battery need to be replaced before the vehicle’s end of life?” Recent data from Geotab analyzing 6,000+ EVs shows that batteries are likely to outlast the usable life of the vehicle itself.

Fuel Costs

Estimating fuel costs is the probably the most complicated part of the TCO calculation for EVs. Gasoline has volumetric pricing and, although the cost per gallon fluctuates, the calculation is simple:

Measuring (and Minimizing) EV Total Cost of Ownership
Measuring (and Minimizing) EV Total Cost of Ownership

Electricity rate structures, on the other hand, vary greatly. Electricity rates have a volumetric price ($/kWh) which can vary by utility, facility location and size, season, and even time of day. Additionally, commercial customers often have a demand charge that is based on the 15-minute window of highest demand during a month. If your EVs are plugging in and charging at the same time as your facility’s peak demand, this will increase the overall demand and result in a higher demand charge. Demand charges can be substantial and are often an unexpected cost for fleet managers. For example, the electric buses that Denver operates along the downtown mall were creating very high demand charges until the city negotiated a revised rate for electric buses, which is expected to reduce the cost-per-mile to operate the buses by approximately 30%. Identifying when charging would occur and implementing policies to ensure it does not coincide with a facility’s peak demand are critical for avoiding an increased demand charge.

Measuring (and Minimizing) EV Total Cost of Ownership
Measuring (and Minimizing) EV Total Cost of Ownership

Resale Value

The resale value is another tricky component of estimating an EV’s TCO. There are several factors impacting EV resale value, including range and the federal tax credit. EVs with 200+ mile ranges, particularly Teslas and Bolts, are holding onto their value much better than older, shorter range vehicles. Because the federal tax credit brings down the purchase price of a new EV by as much as $7,500, the price of used vehicles is pushed lower as well. As the tax credits expire and more EVs with 200+ mile ranges are available, EV resale values may rise. Fleet managers can always fully depreciate EVs in their models if they are concerned about resale value. As government fleets begin to sell more used EVs from their fleets, this data will be helpful for better understanding resale value.

Reducing TCO & Minimizing GHG Emissions

Fortunately, reducing your EV TCO and meeting fleet sustainability goals go hand-in-hand. Once you have an EV in operation, you want to maximize the number of electric miles. We think about this as getting the “right trip on the right tech.” Providing your drivers with guidance on when they should be using an EV instead of a conventional vehicle can help fleets maximize electric miles, cost savings, and GHG emissions reductions. If you have a PHEV, you want to make sure you’re identifying missed charging opportunities. We’ve found that it is common for fleet drivers to not plug in their PHEV since they know they can rely on gasoline. One state fleet we analyzed was plugging in their PHEVs on fewer than 10% of the nights and, as a result, getting very few electric miles and little financial savings. By identifying these missed opportunities, the fleet manager was able to work with drivers to nearly double plug-in rates.

Figure 1. PHEV Nightly Plug-in Rates

Measuring (and Minimizing) EV Total Cost of Ownership
Measuring (and Minimizing) EV Total Cost of Ownership

Fleet managers should talk with their facilities managers to understand their electricity rates and periods of peak demand. Additionally, providing policy guidance or software solutions to ensure vehicles are not charged during peak demand periods can help to avoid demand charges and keep the TCO low.

Another step that can be taken to minimize EV TCO is to make sure you’re not oversizing your vehicle. We see a lot of fleets that, due to range anxiety, put longer-range EVs into applications where shorter range (and less expensive) EVs would work excellently. This range anxiety is more of a “range phobia” and data on your fleet’s actual driving can provide confidence that lower range EVs will meet your drivers’ needs.

Though the TCO calculation for EVs is unique, fleet managers can confidently measure costs by understanding the differences and working with facilities staff to determine the organization’s electricity rates.

About the Author: Sarah Booth is the COO at Sawatch Labs, a data-analytics firm working with fleets across 19 states to help them meet their sustainability goals, from strategic adoption of EVs, to optimizing EV operations, to data-driven rightsizing.

Originally posted on Government Fleet