Whole-life costs analysis: Plug-in hybrids
25 August 2016
Author: Jack Carfrae
Don't worry about a bit extra on your lease rate - look at the whole-life cost figure. That's the golden rule when it comes to procuring vehicles in the modern age.
It's widely acknowledged that fleets basing their policies on rental prices will spend more in the long run, but those that plump for a whole-life cost approach get a better idea of what a vehicle will actually set them back over its working life, end up with something more suitable for the task and, crucially, save a few bob.
On paper, ultra-low emission vehicles should ace the whole-life cost game. The combination of a Government grant, tax breaks and much lower fuel bills than your average internal combustion engine should make for a top-notch cost-per-mile figure - and in many cases it does.
"We've worked with Lex Autolease in the past to work out the savings," says Poppy Welch, head of the Government plug-in car campaign Go Ultra Low. "We compared a Nissan Leaf Acenta to a Ford Focus Ecoboost and [Lex] quoted a £77 per month saving [over the Focus], so that would be £37,000 over 10 cars in a four-year cycle.
"Among the people that have tried it and done a bit of research, I think it's pretty well known that you can make big savings on whole-life costs, but there are still a lot of people who haven't looked into it, so it may well come as a surprise that you can make such large savings."
It isn't always a clear-cut thing, though. There are loopholes in the comparison process and it can be difficult to compare electric vehicles - either full EVs or plug-in hybrids - with petrol and diesel models.
"I think that in the selection process, your average fleet should be looking beyond whatever criteria they currently use," says Mark Jowsey, manufacturer liaison director at KeeResources. "It's worth looking at journey [profiling] because that's the other part of the equation and you can use to identify whether an electric vehicle or an extended-range vehicle actually works for somebody, quite apart from the cost aspect."
Examples of drivers taking plug-in hybrids purely to cash in on the tax savings are not unknown. That's fine if they charge them regularly and fit the usage profile, but high-mileage drivers who are lax with their charging turn the cost model on its head. There have been cases of companies handing back plug-in hybrids on the grounds that they're far too expensive to run, the catalyst for which is drivers who don't bother to plug them in.
"If we're to avoid a situation where there is very little funding for this sort of product then there needs to be a clear benefit from an environmental perspective," adds Jowsey. "With the tax benefits that are available, there needs to be a system that requires you to charge the thing.
I'm not saying every day and I'm not saying for every mile, but I think it's ethically questionable that anybody would take advantage of a grant on a vehicle that they are not charging on a regular basis. I personally don't think anybody should be paid a grant without having the ability to charge at home, or there at least needs to be a charging facility at your place of work.
"From a fleet operator's perspective, one of the things you need to understand is what it is going to cost you in fuel to run it, and the official figure for combined mpg is not enough information.
"It hasn't always been helped by a lack of sophisticated information, and that has increased the likelihood that those people with an emphasis on reducing benefit-in-kind tax as company car drivers may have been attracted more than people for whom it might be more suitable, which has kind of led to a little bit of bad press for the products."
The cost case
Difficult though the calculations may be, ULEVs have made inroads on fleet policies on the basis of favourable whole-life costs. The tax benefits, among other elements, have allowed vehicles that would previously been out of many a driver's range, to filter down and become available to more employees, so the list price - often an Achilles' Heel for EVs - is less of a problem.
"It used to be that a company would say you can have a car with less than 130g/km of CO2 and less than £30,000, but it's not done that way as much anymore," explains Audi's national fleet sales manager David Hanna. "Now, the driver picks any car between £500 and £550 whole-life cost - and that's where [plug-in] cars are really starting to work.
"They are getting into bandings against other cars of a similar body style or cost that are not hybrids. Then, because of the tax advantage to the driver, they pick it, but the company won't let it on [the choice list] unless the whole-life cost is competitive.
They say 'we'll take those cars and let our employees have the reduced benefit-in-kind provided you can make it work for us', and in most cases it does."
Jowsey claims that plug-in hybrids can save money for businesses and drivers, and has the figures to prove it, although both parties need to be clear about the cost and frequency of running the vehicle on electric power: "For a GX3 diesel [Mitsubishi] Outlander at 10,000 miles per annum, the fuel cost is around £3100, whereas running the same PHEV, properly costed, the fuel is £2500.
So from a private individual's perspective, it may well be that the PHEV, charged properly, works quite well. But that's with 4400 of the 10,000 miles [running on] electric, so that's a 'plug in when you get home' level of discipline."
"Done properly and administered correctly, there are some whopping savings to be had on fuel costs - there's no question about that at all," adds Ogilvie Fleet's business support director Andy Stephen. "It's just that what works for one guy who lives 20 miles from the office doesn't work for someone who's rarely there, is generally out in the field, and doesn't know where he's going at any one particular point."
The numbers game: why EV data needs to improve
As much as plug-in vehicles have the capacity to save money, it can be difficult to accurately compare them on a whole-life cost basis. A lack of reliable data or firm electricity prices mean exact ULEV running costs can be tricky to calculate.
"Pure electric vehicles are very difficult things to demonstrate the cost effectiveness of because you have no fuel costs as such, no published acceptable pence per kilowatt-hour," says Andy Stephen, Ogilvie Fleet's business support director.
"We can't show EVs in their best light because we can't show the electricity costs. They are quite expensive in terms of finance rental, but in terms of fuel they come rocketing down and massively offset the extra cost up front. And when you add in things like NI there are more savings to be had; these all affect your whole-life cost."
Stephen claims the chasm between published and real-world mpg figures for plug-in hybrids make the true cost even harder to calculate. "We have had to be very careful who we allow access to these vehicles because you've got published figures in the region of 150-170mpg and that just totally skews your whole-life cost analysis.
"The [Mitsubishi] Outlander we ran here had a published figure of 148mpg at the time. [Our driver] didn't have a charge point at home and was only in the office from time to time. On a good day he was getting 32mpg. That's five times lower than what was published.
"The industry in general needs to adequately showcase these vehicles in the kind of light they need to be shown, which is sitting in a policy next to a diesel and a petrol. Normally, when you put whole-life costs across them, they can look very attractive, but we also need to get the message to people that you can't just put your blinkers on and say 'let's all go EV'.
"In an ideal world, we would want access to every single bit of data that dictates how a vehicle needs to be handled in our quotation system: pulling in the correct grant, the correct cost per mile figure - pence per mile, pence per kilowatt-hour or whatever it is by looking at the vehicle type."
Bin the base: How to bolster plug-in residuals
While it isn't true in every case, eco special models have traditionally been at the bottom end of the trim spectrum. Fleets need look no further than the BMW 320d Efficient Dynamics, which, while incredibly successful in the corporate arena, has been blighted by high sales figures and low levels of equipment. That hasn't exactly made for flourishing used demand and has subsequently blunted the whole-life cost figure.
Audi reckons it has the answer though, for its ULEV vehicles, the A3 and Q7 E-tron, at least. The firm's approach has been to ladle equipment on its plug-in hybrid models, creating a single, high-spec trim level - the opposite of the 320d ED approach.
"We went for a one-spec car [with the A3 E-tron]," says David Hanna, Audi's national fleet sales manager. "There are options you can add, but if you look at the normal diesel range you've got Sport, SE, etc. - the E-tron is one trim.
"If you take that car and spec an equivalent 184hp diesel A3 with all the options the E-tron has, the diesel is more expensive. If you look at the spec-for-spec comparison, you almost get the technology for free in that regard.
"It's very expensive technology and if you've got more margin in the car with a higher list price and more options, it allows you to offset some of the technology costs.
"All that spec then residualises because it isn't options - everything is part of the standard specification so it significantly helps the RV position. The tempting thing is to de-spec the car and make it a low entry price, but there are pros and cons to that approach as well."