Insight: Why UK fleets shun EVs despite incentives

November 22, 2016

Fleet use of electric vehicles (EVs) remains relatively insignificant, and Arval has highlighted that many fleets are still reluctant to use them.

With more than half of all new cars in the UK being bought by fleets, and with 20% of UK domestic carbon emissions from road transport, a fundamental shift of UK fleets to low emission vehicles is needed if the government is to reach its carbon targets. The government has committed to cutting greenhouse gas emissions by 50% compared to 1990 levels by 2027. UK emissions were 35% below 1990 levels in 2014 and provisional figures show emissions fell a further 3% in 2015.

The UK is now the largest market for plug-in hybrid vehicles (PHEVs) in Europe, and has the largest number of electric-chargeable vehicles in the EU. In 2015, ultra-low emission vehicle sales reached 28,188 – more than the previous five years combined. The AA has forecast that half a million cars on the UK's roads will be plug-in or fully electric by 2020 – a big increase on the 85,000 currently.

Figure 1: Ultra-low emission car sales (fully electric powertrain, tail-pipe emissions below 75 g/km of CO2)

UK government figures for taxable benefits-in-kind (taxes on company ‘perks’) point to UK fleet composition being overwhelmingly diesel-based, with 82% of the fleet figures being for diesel cars. In fact, diesel is so dominant that all other fuel types are grouped under ‘non-diesel’, be they petrol, electric or other alternative-fuel vehicles (AFVs).

This highlights the scale of adaption required in the years ahead towards lower emission vehicles.

Changing market landscapes

Forecasters are predicting an overall decline in diesel sales, with business consultants AlixPartners forecasting European hybrid and EVs to represent 35-40% of new car sales by 2025, increasing to 65% by 2030, by which time the diesel share is expected to have plummeted to 9%. Top carmakers including Volkswagen are also expecting a decline in diesel in the UK, although to less drastic levels, with diesel representing 30-40% of the market.

In the wake of the Volkswagen emissions scandal, which has brought the issue of air pollution to the forefront of public consciousness, extremely tough new penalties for diesel (and to a lesser extent, petrol) cars are on the horizon. With US emissions standards far tougher than European ones, there will be constant pressure to improve the figures, putting diesel technologies under even greater pressure. The UK government has recently lost a high court ruling which will force it to greatly increase schemes to reduce air pollution, such as with clean air zones in cities. London Mayor Sadiq Khan has made air pollution a top priority of his administration, and plans to add a Clean Air Charge (‘T-Charge’) on top of the congestion charge.

With the surrounding political environment being increasingly hostile to diesel vehicles, it is therefore unlikely that the diesel dominance in fleets is going to be allowed to continue.

James Douglas, head of Audi UK's fleet operations, said: 'Audi's fleet mix of diesel is quite high, somewhere in the high 60s [%]. But I think the future of the market will be dominated by alternative fuels, petrol electric [hybrid] in the medium to long term.

'Almost every company has an environmental policy and reducing emissions is a large reason why the hybrid is popular. The cars themselves are not the cheapest, so the government grant [reducing the list price by between £2,500-4,500 (€2,912-5,244)] is an important part of the proposition.'

While EVs make up only a miniscule fraction of UK company car fleets, fleets are the biggest driver of the electric vehicle market – suggesting that if EVs are to become mainstream, as necessary for the government to meet its climate change commitments, fleets are a key source of the surge in demand.

So why are fleets not taking up EVs?

As of March 2016, UK plug-in car and van grants reduce the cost of electric car list prices by £2,500 or £4,500 depending on the model’s CO2 emissions and range. This gives some EV models price parity with their diesel counterparts.

Range anxiety has been a traditional concern with EVs. However, OEMs are increasingly addressing these issues as new models move to dispel criticisms of range anxiety, as demonstrated by Opel’s upcoming Ampera-e, which has a range of more than 500km. In the Netherlands, hybrid and electric fleet vehicles travelled an average annual distance of 17,300km and 16,300km respectively in 2015 – far outstripping the 10,700km covered by petrol-driven cars – showing that range of EVs is increasingly not a limiting factor.

Lack of adequate charging infrastructure is another common concern. However, electric charging point use in Scotland has more than doubled in the past year, with the new rapid charge points being particularly popular. The UK already has Europe’s largest network of rapid chargepoints, with this set to grow greatly, with Nissan predicting that UK charge points will outnumber petrol stations by the end of the decade.

 EVs vs diesel price comparison

Figure 2: Net price of key EVs in UK (including incentives) with diesel peers

 

Figure 2 takes key electric vehicles in the UK market and compares their net price to diesel peers in the manufacturer’s range with a similar power output.

Taking incentives into account, some EV models, such as the BMW i3 and Renault Zoe have reached price parity with their diesel peers, which may be why the UK government reduced the EV grant from £5,000 to £4,500 in March.

However, other EV models such as the Volkswagen e-Golf and Nissan Leaf still remain significantly more expensive than their diesel peers, hindering their uptake by fleets.

 EVs vs diesel acquisition costs comparison

Figure 3: Acquisition costs of key EVs in UK (including incentives) with diesel peers

 

Considering the acquisition costs of purchasing the car, electric vehicles remain considerably more expensive, with the Volkswagen e-Golf, Nissan Leaf, BMW i3 and Renault Zoe all having higher acquisition costs than their diesel peers.

EVs vs diesel RV comparison

Figure 4: Residual values of key EVs in UK (including incentives) with diesel peers

 

Residual values for EVs also continue to have a disadvantage against their diesel peers, although the Nissan Leaf is nearing the residual value of the Nissan Pulsar. However, the Volkswagen e-Golf clearly shows that strong residual value performance against diesel counterparts is now possible.

EVs vs diesel TCO comparison

Figure 5: TCO of key EVs in UK (including incentives) with diesel peers

However, with total cost of ownership (TCO) ultimately being the most important consideration for fleets, it is clear that electric vehicles are now becoming competitive with their diesel peers in terms of TCO. In addition, the TCO advantages of the electric vehicles are considerable, with the e-Golf having a TCO advantage of more than £2,000 compared to the diesel Golf, and the Nissan Leaf and Renault Zoe having TCO advantages compared to their diesel peers of more than £4,000 and £1,500 respectively. The BMW i3 also almost matches its diesel peer despite the strong residual value of the 1 Series model, with only a £1,000 difference in TCO.

Summary

As EVs increasingly match their diesel peers in terms of incentive-boosted net price, acquisition costs, residual values and TCO, it appears that the fleet industry is slow to react to the changing market landscapes. This may be due to long-standing concerns among consumers over range anxiety and charging infrastructure, or it could be fleets being cautious in changing their business model away from a reliance on diesels.

In order to present the case strongly to fleets for the uptake of EVs, OEMs must focus on their TCO figures – showing that while net prices and cost of acquisition remain higher, once TCO is factored in, EVs become more competitive.






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