Creating a true Total Cost of Ownership

To understand the true financial impact of transitioning your fleet to EVs, it’s important to calculate the Total Cost of Ownership (TCO) – factoring in running costs to servicing and maintenance.

Read on for a breakdown of everything to include in your TCO and what it means.

How to calculate TCO

These are the three factors we see as key to a robust TCO analysis:

Vehicle costs
Running costs
Taxation

A woman charging an ID.5 with a child and a dog close by

Vehicle costs

Most fleets lease their company cars. If this applies, you’ll only need to factor in the monthly rental when calculating vehicle costs.

This is calculated by the finance company based on the depreciation of the vehicle over the term of the contract, any associated taxes and fees – like Vehicle Excise Duty (VED), new vehicle registration fee and delivery charges – plus interest applied to the money borrowed to finance the vehicle.

If you buy your vehicles outright, you’ll need to calculate the vehicle’s depreciation for the time it will spend on your fleet.

To do this, take the value you bought the vehicle for and subtract its forecast residual value.

Running costs

Fuel

Fuel is the biggest vehicle running cost.

How you reimburse drivers for business-related travel and how they charge their vehicle determines the savings you could realise for your business.

The government provides advisory fuel rates (AFR), recommending the rate at which company car drivers should be reimbursed on a per mile basis:

Electric vehicles: 7 pence per mile
Petrol: 12p to 23p per mile, depending on engine size
Diesel: 11p to 17p per mile, depending on engine size

To accurately reimburse EV drivers and reflect this in your TCO you could offer a complimentary home charger with a company car, so drivers can benefit from cheaper charging.

Or you could offer employees access to workplace chargers and charge cards for public charging. Whatever your decision, including fuel in your TCO analysis will have a significant impact on its results.

Service, Maintenance and Repair (SMR)

Servicing is another area where EVs can deliver savings. EVs still experience wear on parts (such as tyres and brakes), but given there are fewer components, there’s generally less wear and tear and need for repairs. Plus, EVs don’t use oil either, so oil changes aren’t required.

If your business leases its vehicles, the costs of SMR may be included in the monthly rental. So you won’t need to include this in your TCO analysis.

Insurance

Low Emission Zones

Taxation

Road tax and registration fee

Taxes and fees for businesses that lease vehicles tend to be included in the monthly rental. Typically, you won’t need to include them separately in your TCO.

If you don’t lease your vehicles, every time a new vehicle is registered with DVLA, it incurs a £55 cost. You’ll also have to pay Vehicle Excise Duty (VED), commonly referred to as vehicle tax or road tax.

All-electric vehicles will be charged VED for the first time from 1^st April 2025. Although, for year one it’s just £10, followed by the standard rate of £195 from year two onwards.

From the same date, any EV with a list price exceeding £40,000 will be subject to an additional charge of £410 per tax year (from year 2 – year 6) – this is as part of the additional rate, also known as the ‘expensive car supplement’.