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Electric Car Costs Don’t Add Up

October 8, 2013

By Paul Homewood

 

 

To meet targets laid down by the UK Climate Change Act, there will need to be a massive switch to electric cars. It appears that the Lib Dems want to go even further, and ban all petrol and diesel cars by 2040.

I have already looked at financial comparisons between electric and conventional cars, for instance the Nissan Leaf. The inescapable conclusion is that the much higher purchase cost of electric cars massively outweighs any saving on running costs.

But let’s assume that mass production eliminates this problem, and that technological improvements find an answer to the intractable problem of limited range. How do the actual running costs compare?

 

In a previous exercise, I compared the Leaf with the Ford Focus, which Nissan themselves offer as a comparable model. Let’s see how the running costs compare.

 

 

  Leaf
Wh/Km 150
Electricity Price per KWh 13p
Pence per mile 3.9

 

  Ford Focus 100PS
Mpg 60.1
Petrol Price £5.90
Pence per mile 9.8

 

 

Both sets of consumption figures are no doubt optimistic, but Nissan themselves acknowledge theirs are heavily dependent on factors such as outside temperature, heating and air conditioning usage. So I suspect their figures are the more optimistic of the two, but let’s accept them for what they are worth.

Assuming an average of 10,000 miles pa, the Nissan driver could expect to save £590 pa. However, there is a rather large fly in the ointment here.

 

From the price of petrol at the pump, the government takes about 60% in the from of duty and VAT. So out of the £980 the driver pays every year for petrol, the government takes £588, and if the electric car driver no longer pays this tax, someone else will.

And, of course, when we are all living in the Lib Dems green wonderland and all driving their electric cars, we will all end up still having to pay the missing tax revenue, one way or the other. In other words we won’t have saved a penny.

If tax is excluded from the petrol car running costs, the running cost comes down to exactly the same as the Leaf, 3.9 pence per mile. (To be fair, VAT is charged on electricity at 5%, so the Leaf cost would come down to 3.7 pence).

OK, you say, we can still break even, assuming the purchase cost is brought down. But there is another problem.

 

DECC have already acknowledged that their climate change policies will add an extra 22% to electricity prices by 2020, and this does not include the extra network costs, not yet quantified, which will be unavoidable as the National Grid is expanded to connect to wind farms. Neither does the figure include the costs that will be incurred by the Capacity Mechanism (paying gas power stations to stand by, in case the wind does not blow) or Contracts for Difference (e.g strike prices for nuclear), as neither of these programmes have yet started.

Add all this up, and it seems unlikely we will get away with less than a 30% increase in electricity costs by 2020, just to pay for the government’s obsession with Big Green. And this will be on top of any increases in wholesale electricity costs.

Of course, petrol costs are likely to rise as well, but it is worth noting that the Treasury, in their long term planning, assumed that oil prices rise by only 2.7% pa,which is less than their forecast for RPI of 3.2%. This appears to take account of the loosening of oil supply, as new technologies open up new reserves.

Given the phasing out of cheap coal, to be replaced by more expensive gas, it seems highly unlikely that wholesale electricity costs will rise as little as 2.7% pa.

 

So, factoring in an estimated 30% price rise for electricity, the Leaf’s running cost would jump from 3.7 pence, to 4.8 pence per mile.

All of a sudden, electric cars don’t sound very attractive!

 

Other Considerations

1) When I did the Leaf analysis in April, Nissan had a comparison chart, showing that insurance for their car was £300 more than the Focus. This now seems to have disappeared from their website. I wonder why!

 

2) Quite apart from the car for car comparisons, the loss of duty and VAT from petrol/diesel leaves a massive black hole in government finances. By 2030, the Treasury forecasts this shortfall will amount to £14bn pa, at today’s prices, i.e about £500 per household. (See my analysis here.)

Even supposing that this shortfall is fiscal neutral, i.e savings on electric cars cancel out the extra tax that has to be raised, there remains the hugely awkward question of how to raise this tax. Whatever option the Treasury takes seems to be fraught with problems:-

 

a) Add an extra tax to electricity – impossible as it would impact on everybody, whether car drivers or not, and would exacerbate fuel poverty.

b) Increase Vehicle Excise Duty – would unduly affect low mileage drivers, particularly pensioners, would be a regressive tax,and would also mean petrol car drivers paying twice.

c) Increase Vehicle Excise Duty, or some other tax, on electric cars only – would rather defeat the objective of encouraging drivers to switch to electric.

d) Increase other taxes, such as Income Tax or VAT – again this would affect non car drivers, and also petrol car drivers.

 

Unsurprisingly, the Treasury have not yet formulated any plans of how this shortfall will be dealt with!

 

 

 

References

http://www.nissan.co.uk/GB/en/vehicle/electric-vehicles/leaf.html

http://www.ford.co.uk/Cars/Focus/Performanceandefficiency

13 Comments
  1. nzrobin permalink
    October 8, 2013 5:36 pm

    And Paul, don’t forget that you have to generate the power at the time when the vehicles are plugged in. Where’s the power going to come from?

  2. October 8, 2013 7:02 pm

    you forgot two other related factors
    1 how much will these two cars be worth in 5y say
    2 the battery is a very expensive item and will have ot be replaced at some stage – you need to factor in a depreciation charge to cover the cost of a new battery

    ps i understand they are mechanically quite complex (eg they need cooling) – i wonder what their mechanical reliability is like and how they stand up in collisions – have any crash tests been done?

  3. October 8, 2013 7:13 pm

    My electricty increased by 20% this month to 14p per KWh. God knows what it will be in 2020.

  4. October 8, 2013 7:21 pm

    Reblogged this on Johnsono ne'Blog'as.

  5. October 8, 2013 7:29 pm

    pps
    you also forgot the the insurance aspect

    since an electric car costs twice a ford focus presumably the comprehensive insurance would also be much higher

    i wonder how much breakdown insurance or battery insurance would cost?

  6. mkelly permalink
    October 8, 2013 8:03 pm

    Another way to control the people. Limited size cars with limited range. No more 5 hour drives in the country or to Paris. No hauling the caravan to a spot for a vacation. I feel for you folks.

  7. John F. Hultquist permalink
    October 8, 2013 9:26 pm

    Very interesting and very difficult exercise. There are many variables and unknowns. On top of such things is that everyone with an agenda wants you to use their numbers. Still, this is a useful thing to be aware of. Thanks.
    ~~~
    In the USA, gas taxes are used for maintenance, repair, and building of the highway system. Some has been siphoned off for mass transit, bike lanes, and other things conceptually far from what was intended and what most people think happens when they pay their gas bill. There is a lot of deferred maintenance and replacement. The State of Washington claims it has “7,000 centerline miles of highways, 3,400 bridges and ramps, 39 tunnels and covered sections of highways, 42 safety rest areas.” Additionally there are county and city structures. Currently the loss of gas taxes for whatever the reason makes these issues worse. Also, costs of materials and wages have gone up, and higher structural standards have been put in place, but the tax on gasoline has not kept pace. With high pension and medical costs kicking in as the demographic wave rolls through many problems will worsen.
    Welcome to the 21st Centuary. Not a good time to be in the lower 80% income group. (I just took that ’80’ out of the thin air!)

    • October 12, 2013 4:22 pm

      Motoring taxes have been a sore point over here for many years. They pull in far more money than is ever spent on the road system.

  8. W Bowie permalink
    October 9, 2013 10:05 am

    The most important cost factor is the life of the car.

    An electric car is only as good as its batteries. These are rated to last about 8 years and cost more than the car is worth at eight years old. A complete battery set for the Leaf is £19,392 So for all practical purposes an owner should write off the cost of an electric car at half the life time of a Ford Focus

    Just suppose the cost of a new Leaf came down to £16,000 [it is twice this at the moment] The capital cost write off would be £2.000 p.a. A Ford would be just £1,000 p.a. – because it last twice as long.

  9. October 12, 2013 6:38 pm

    The whole idea of pushing electric personal cars doesn’t add up – More green posturing than actually helping the environment.. My explanation :
    – If you want to save as much CO2 for your $ as you can
    .. You wouldn’t waste a Solar PV panel for a UK roof you’d stick it in a sunny country where it would be working magnitudes more.
    – If you want to save as much CO2 for your $ as you can
    … You wouldn’t waste it on a vehicle that is parked on the driveway most the time. You’d focus on commercial vehicles like buses, trucks & taxis which can be on the road 20 hours a day so saving more CO2.
    – If you want to save as much CO2 for your $ as you can
    … You wouldn’t be flying around the world to climate conferences all the time. #GreensGoByAir
    …. but this game doesn’t seem to be really about saving CO2 does it ?

  10. October 15, 2013 1:15 pm

    London now has a large number of hybrid buses. Some excellent comparisons could be drawn if we could have access to the real figures because they are running identical makes together some with a 6 cylinder diesel of around 250hp and others with hybrid drive coupled with a 4 cylinder version of the same engine of around 180hp.

    These engines are Euro 5 at present and will soon switch to Euro 6 Euro 6 just like EPA10 in the US has been duped zero emissions as for all practical purposes all that comes out the exhaust is Water and Carbon Dioxide. Now a birdie tells me that the Batteries are not lasting well and that the engines are operation 100% of the time just to keep charge in them to drive the Buses. As I travel on these buses every day, that is the impression I get. It is strange and sometimes disconcerting when you travel on a hybrid buses where the engine switches off and the bus drives just under electric power, in other words everything seems to work correctly.

    Interestingly when I worked for said engine manufacturer’s automotive marketing arm back in the 90’s double decker buses used engines of 180hp. I know that todays 4 cylinder 180hp engine will use a lot less fuel than the 90’s versions, but if working all the time it will not make any significant saving over the modern 6 cylinder version of 250hp. Not only this, but the hybrid bus costs significantly more than a standard bus. So is the bottom line we pay a higher capital cost to get zero saving.

    And the point that is now forgotten is that we have cracked beaten banished harmful emission from heavy-duty diesel engines. EPA07 and Euro5 achieved that yet regulators have required zero to be reduced to half of zero. Now I’m sure than all manner of hardened zealots with lots of charts and statistic would set out to prove me wrong, but I challenge anyone to demonstrate the measured improvement in human health that will result from this change; and that should be the bottom line not looking better on a graph. What we could have had was a 15% reduction in actual fuel burn which would be infinitely more beneficial to society.

  11. martin permalink
    October 19, 2013 8:52 am

    What make you think it will change much in the next 10 years?

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