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Will the EV of the year 2022 become the TCO champion of the year 2023?

21 October 2022

Will the EV of the year 2022 become the TCO champion of the year 2023?

Last week, Link2fleet announced the Volvo C40 as the Electric Vehicle (EV) of the Year 2022. The C40 was elected by 300 fleet managers after over a combined 1,000 test rides earlier this year. The electric Volvo model is a popular choice in the ongoing electrification of corporate fleets. Therefore, this blog compares the C40 against his closest Volvo alternatives in other powertrains (XC40) from a (life cycle) Total Cost of Ownership (TCO) point of view.

 

volvo c40 fleet electrification

Volvo C40: Electric Vehicle of the Year 2022

 

Imagine the following situation. Right before the summer holidays next year, your employee becomes eligible to order a new car. Provided that the average delivery time is around 6 months at that time, the delivery of a new car is expected at the beginning of 2024. The employee has a budget of € 1,300 in TCO and is considering a Volvo C40, but since she cannot charge at home, she is also considering the XC40 in either petrol or PHEV.  As a fleet manager, you urge her to make the decision soon, to get the order out and signed before 1st of July, 2023, the much anticipated transition date.

But what exactly is the impact of ordering before or after the 1st of July 2023?

Let’s do the math. To calculate the TCOs for the alternatives, lease prices and technical data is taken from DirectLease: C40, XC40 petrol, XC40 PHEV. A summary of the most important input data is provided below.

Model Powertrain CO2 emission WLTP (g/km) Catalog value Monthly lease price (48m, 25K km)
C40 Electric 0 € 55,800 € 861
XC40 PHEV 47 € 53,850 € 795
XC40 Petrol 165 € 43,850 € 665

 

Before the transition period

First, let’s review the situation of ordering the car at June 30th, 2023. Results are in the table below, and they show that PHEV is, from a budget perspective, the best choice: she still has €100 per month left for options. Though all three vehicles are within budget, note that the benefit in kind for the petrol (having a 165 g CO2 per km emission) is at a threefold of the PHEV/EV vehicles.

 

C40 XC40 XC40
Powertrain Electric Petrol PHEV
Order date 30/06/2023 30/06/2023 30/06/2023
Start lease contract 01/01/2024 01/01/2024 01/01/2024
Lease cost 861.00 665.00 795.00
Benefit in kind 192.91 623.91 218.75
CO2 contribution 31.25 89.63 31.25
Energy costs 172.70 203.70 181.84
Total unrecoverable VAT 141.10 118.58 133.34
Fiscal cost 25.72 143.75 55.27
TCO costplus 1231.76 1220.65 1196.70

The figure below provides a graphical overview of the C40 and XC40 petrol budget breakdown. Though the car policy budget cost for the employee is highly comparable, the elements that make up the budget costs are highly different!

tco breakdown

TCO breakdown for C40 and XC40 petrol at start of lease contract (01/01/2024), ordered 30/06/2023

 

After the transition date

Now, how does the situation looks like if the employee would have ordered at July 1st, 2023?

C40 XC40 XC40
Powertrain Electric Petrol PHEV
Order date 01/07/2023 01/07/2023 01/07/2023
Start lease contract 01/01/2024 01/01/2024 01/01/2024
Lease cost  861.00 665.00 795.00
Benefit in kind  192.91 623.91 218.75
CO2 contribution  31.25 201.66 70.30
Energy costs  172.70 203.70 181.84
Total unrecoverable VAT  141.10 118.58 133.34
Fiscal cost  25.72 143.75 55.27
TCO costplus 1231.8 1332.68 1235.76

 

As of July 1st 2023, the XC40 petrol would be out of budget for the employee. The PHEV and the EV options seem very competitive in terms of budget cost, and given she cannot charge at home, it seems like a good option to again opt for the PHEV in this case. Not much of a difference here, you would think?

 

Life cycle TCO

In our earlier white paper, we introduced the concept of “life cycle TCO”, the average annual TCO over the lease contract for vehicles ordered in the transition period July 1st, 2023 – December 31st, 2026. As the definition explains, this metric takes into account future employer cost increases into the budget cost of the car, to make the employees responsible for the fiscal consequences of their choice. Make sure to download your free copy of the white paper to learn more about the concept and its assumptions.

C40 XC40 XC40
Powertrain Electric Petrol PHEV
Order date 01/07/2023 01/07/2023 01/07/2023
Start lease contract 01/01/2024 01/01/2024 01/01/2024
TCO costplus  € 1,231.76  € 1,332.68  € 1,235.76
Lifecycle TCO costplus  € 1,236.43  € 1,468.67  € 1,393.80
Total cost over lease contract  € 59,348.50  € 70,496.28  € 66,902.19
Budget cost bias 0.4% 10.2% 12.8%
Total additional costs over lease contract  € 223.98  € 6,527.65  € 7,585.73
Impact on total costs between ordering before or after 01/07/2023  € 223.98  € 11,905.15  € 9,460.43
Relative impact 0.4% 20.3% 16.5%

 

Remark that the cost increases for the PHEV amount to an additional €7.5k over the lifetime, or almost 0.5 year of additional TCO. Compared to ordering a couple of days earlier, before July 1st, the impact amounts to almost € 10k, or close to 8 months of TCO cost. It might become clear that the lifecycle TCO is a much needed instrument to overcome the transition period at cost neutrality for the employer. In the figure below, the TCO breakdown is shown for 2027, the final year of the leasing contract. While the TCO costplus for 2024 between EV and PHEV was more or less equal at € 1235, the monthly TCO for PHEV increases to € 1575, a 28% increase.

 

tco lifecycle fleet

TCO plus breakdown, for 2027 (last year of lease)

 

How LIF can help you: our proprietary Headlight platform

This blog illustrated that the life cycle TCO is the appropriate budget methodology to include in your car policy, as it makes the employee responsible for the future fiscal costs of his car (powertrain) choice and prevents unanticipated cost increased over the leasing contract. LIF has built a seamless digital ordering flow to support organisations with this budget methodology included. To learn more about how we can help you avoid cost increases during the upcoming transition period, don’t hesitate to reach out to alain@letitfleet.com.

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