Rethinking TCO for electric vehicles

Yves Helven

According to a part of the fleet expert community, it’s time to redefine the classic TCO model. Arguments in favour of revamping the old calculation are diverse: the transition from ownership to usership, impact of recyclable elements (batteries) in the automotive industry, volatility of residual values...

Some even take into account elements that are external to the asset, such as the cost of congestion or the cost of sustainability. Buying an EV instead of an ICE simply in order to be able to use a vehicle on fast lanes or inside city centres might represent an additional cost indeed.

The main question however is not so much the TC part of the calculation. It’s the O.

Linear Economies versus Circular Economies PWC’s “Road to Circularity” portraits in an excellent way the need for a different type of economy. It explains how, since the industrial revolution, industry and wealth-creation have operated in a “take-make-dispose” model, also called the “Linear Economy”. This involves extracting natural resources to make products that are used for a limited time and eventually discarded as waste. Here, the focus is on the product.

The rapid consumption of finite resources (wood, oil, …) and the foreseeable end of their availability, asks for an economy where raw materials can be reused, recycled or reinjected into production; this is the “Circular Economy.” Here, the focus is on the service.

Translating both types of economy into the fleet sector, PWC gives the example of BlaBlaCar. This mobility provider allows people to book a seat in a car for a specific ride through social media: you might be traveling from Amsterdam to Brussels and have 3 free seats in your car. BlaBlaCar makes these seats available to other people.

More generically and by extrapolation, PWC is telling us that “usership” of some kind is preferred to “ownership”. Since EVs contain one important ingredient that is both heavy on natural resources and offers the possibility of recycling – its batteries – there’s perhaps a case to be made for EVs in a TCU model rather than a TCO model.

EVs and traditional TCO Research and venture capital firm LoupVentures published an old-school 5-year/75,000-mile TCO comparison between a Tesla Model 3, an Audi A5 and a Toyota Camry LE. It’s an update

TESLA MODEL 3 of their 2017 study, which received quite a bit of press at the time. To be noted: this is a US study and therefore all costs are local to the US and in USD.

TOYOTA CAMRY LE AUDI A5

Purchase Price Financing Tax, Licence, Title Insurance Fuel/Electricity Maintenance/Repairs Total Remarketing Value Total Cost per Mile 38,900 24,600 44,200 2,765 468 3,180 3,025 2,050 5,405 5,640 6,060 8,080 2,250 8,140 9,910 1,200 4,000 8,000 53,780 45,336 78,775 18,988 8,905 18,564 34,792 36,431 60,211 0.46 0.49 0.80

The US was shocked to see Tesla propose a 3-year lease on the Model 3 for a reasonable amount, without purchase option at the end of the contract.

Quod erat demonstrandum… These comparisons are extremely popular and have a tendency of proving that the Model 3 is the more economic car. The hiccup however is the RV.

European fleet managers who have done similar exercises via their preferred lease supplier, have come to different conclusions. RV settings for electric vehicles are – in general, there are exceptions – conservative at best. Leasing companies work different factors into their residuals, such as the risk of ageing tech, the low appetite of the markets where end-oflease cars are being sold and the lack of EV remarketing experience. In addition, let’s not forget that the banks who are funding leasing companies, have not forgotten about the thousands of unsold remarketing cars standing on car parks during the financial crisis a decade ago; leasing companies are urged to reduce RV risks to a maximum.

The right eco-model for EVs The US, where operational lease is much less popular than it is in Europe, was shocked to see Tesla propose a 3-year lease on the Model 3 for a reasonable amount (from $341 upwards for 3 years depending on the version, options and mileage), without purchase option at the end of the contract. An outrageous internet compared the deal with a car rental agreement.

Nevertheless, it is interesting to see that Tesla absolutely wants their vehicles returned to the factory at the end of the lease; it might be new to the US market, but it makes complete sense. Being able to recycle the vehicles and their batteries for things like the Powerwall product, has many advantages over applying a Linear Economy model to EVs.

Irrelevant in less than a decade Recycling natural resources or, in our case, parts of an electric vehicle, is undeniably the way forward and leads indirectly to new consumption models. TCU seems to fit electric vehicles better than traditional ownership.

In conjunction with the rising popularity of mobility solutions, all based on sharing the asset rather than allocating an asset to a single user plus the impact of congestion on the economy plus various city regulations making it more difficult for cars to enter, usership is gradually becoming a valid alternative.

Whether EVs should be owned or used and how to calculate their ownership or usership cost, will be irrelevant in less than a decade. Autonomous vehicles will be the ultimate push towards usership and guess what? They’ll be electric.

“DISREGARD ALL ESTABLISHED RULES”

Benjamin Uyttebroeck

@uytteb

Embedded software company Qteal does things differently. It’s a company without managers or bosses, relying instead on

employees’ capacity to self manage. They also self manage their mobility budgets, which is centred around a person’s mobility needs and not around cars.

Qteal founder Jan Van Lishout built his company around the concept of self-managed teams, explaining there are no managers or bosses. He made each employee responsible for their budgets, including their salary. “Of course that means there is full transparency about each employee’s salaries, including mine. It’s the same thing for mobility: it requires transparency.”

Disregard all rules “The first step in all we do is to disregard all established rules. Instead, we focus on how we can make our employees and our clients happy, which helps us focus on the quality and the value of the solutions we offer. As part of this approach, we give employees the means they need to deliver their services. The company car isn’t part of those means but making sure they are mobile is.”

“We didn’t want to impose a company car on everyone but we did want to ensure all staff are mobile, during working hours as well as in their personal time. We didn’t want to give them a tool that could cover all their needs, focusing instead on their main use – driving to the office on weekdays, while keeping an open mind for exceptional and very exceptional use.”

In practice, all Qteal employees do have their own car, which they manage as a shared car open to all colleagues. “We found this solution to be more advantageous than opting for an existing carsharing scheme.”

Buffer Carmakers and leasing companies needed some convincing to get them on board, said Mr Van Lishout. “They were apprehensive that our carsharing strategy would make us order fewer cars. The opposite turned out to be the case: we have 18 cars for 16 employees as we needed a broader variety and this gives us an additional buffer.”

Fleet size may not have been an issue, Qteal does work on getting mileage and fuel consumption down. “We achieve that through a very human phenomenon: it’s about money. Our employees get a mobility card with a monthly mobility package, say for €1,000. If we assume €600 is spent on the car, that leaves them with €400 to pay for all other mobility needs including filling up the car. This encourages them to look for the cheapest petrol stations and to organise carpooling with colleagues – effectively halving their fuel consumption.”

“If they don’t use up their full mobility package, they keep ownership of what’s left and they can use it to rent a car, get a leased bike or to splurge on business class plane tickets.” Indeed, company travel is also paid using the mobility card, though the company does provide more project-related travel budget as needed. “When we started talking with leasing companies, we found it was easy to get them on board on a philosophical level. In practice, though, they’re still very much focused on the car. They also treat mobility cards as a fuel card, only making them available when the ordered car is delivered and not while you’re still driving a pre-contract vehicle. So we had to attack these sacred cows and get them to review their processes.”

Benefit in kind “In practice, we found that regulations aren’t ready for what we’re doing. If I take the train to go to the beach at the week-end and pay for it with my mobility card, that’s considered to be benefit in kind. If I use my company car filled up with fuel paid by the company, it isn’t. We’re all supposed to be driving less but regulations aren’t following when we try to make that possible.”

Qteal entered into talks with social inspection, arguing that a mobility card is like a fuel card, meaning it shouldn’t be considered to be benefit in kind. “In the end, they agreed, but we did rely on reasonable people at social inspection who had an open mind.”

Identical look Sharing cars between colleagues is more complicated when people get to customise their vehicle to their wishes, said Mr Van Lishout. “That’s why all our cars have an identical look: they’re black with a large company logo on them. This makes it clear that we’re dealing with a company car and not a private car, and it helps to create the right mindset.”

The Qteal way of car deductibility Read the full interview

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