Pricing of Electric Vehicles versus Carbon Fuel Cars

Read any article about new electric vehicle technology and the two key grumbles from both motorists and industry pundits will be the forecourt cost of a new EV and possible limitations on its range.  It’s time for some myth busting!

A new EV is very likely to be significantly more expensive than a small brand new or used conventional carbon fuel car but, if you compare a new EV with a new top of the range or mid-range larger car from most of the major car manufacturers, then the price point is not now vastly different.  As new EV technology begins to increase its market share driven by more manufacturers joining the trend, a move supported by governments’ commitments to phase out carbon fuel vehicles, the price gap will only narrow even further.

Leasing an electric vehicle

Leasing a vehicle is a good way to make the forecourt cost more palatable; business leasing can offer affordable monthly payments on new EVs in a market where there are not many used electric cars available plus there are the inevitable concerns over battery longevity on older models. 

Business leasing has always been a good way to access brand new cars with all the attendant benefits and this has not changed with the advent of electric vehicle technology.  But pricing comparisons between EVs and conventional carbon fuel cars is not just about the purchase cost; the overall package needs to be evaluated when comparing new technology cars and vans with their carbon fuel counterparts.

Read our guides to the financial benefits of an EV and the OLEV grant

Cost savings on fleet electric vehicles compared to conventional carbon fuel alternatives

New incentives mean there has never been a better time to consider converting a fleet of business vehicles to new electric technology.  The personal tax liability for employees has also improved which will encourage more staff members to go electric if they have the option of a company car.  Not just good for the planet, here are some of the cost savings for businesses running fleet vehicles when comparing the two technologies.

  • Electric cars cost around £4 per 100 miles to charge on average compared to a cost of £14 for a conventional carbon fuel driven vehicle over the same distance and the amounts you can claim as business mileage from HMRC also differ according to the type of vehicle you’ve registed
  • Zero emissions mean no repeat charging for going in and out of Low Emission zones in towns and cities, a boon for busy urban businesses with frequent short journeys
  • In London, electric vehicles are exempt from the Congestion Charge and with effect from October 2021, the Ultra-Low Emission Vehicle Zones is set to expand considerably from the centre of the capital
  • Maintenance on electric vehicles is cheaper than conventional carbon fuel cars.  Electric cars have fewer moving parts and therefore less servicing and repair requirements
  • There are government incentives towards the cost of the purchase price of a new ultra-low emission vehicle although the grant has reduced slightly since its inception in 2019
  • Pure electric vehicles are exempt from company car tax from April 2020 onwards with Benefit in Kind rates increasing to 1% from April 2021 and 2% from April 2022.  Compare this with a maximum of 37% charged on the least CO2 efficient vehicles.  There are also new tax bands for plug-in hybrids and other EVs that emit 1-50g of CO2/km
  • Employers offering staff brand new electric cars at a reduced rate can benefit from NI contributions at a reduced rate as Class 1A NI contributions are linked to a car’s CO2 emissions and P11D purchase cost/value
  • Business owners can claim capital allowances on cars bought and used within the company with very attractive rates for the first-year allowance on low or zero-emission vehicles

For employees who are thinking of opting for a company car or changing their current carbon fuel company vehicle to an electric alternative, there are some attractive incentives.

  • Pure electric vehicles are exempt from Vehicle Excise Duty, an appealing feature to employees who are opting for a company car, even low emission vehicles and plug-in hybrids which emit less than 75/km CO2 will pay less road tax in the first year
  • Electricity is not currently classed as a road fuel so ultra-low or zero emission vehicles have no fuel benefit charge so employees don’t have to pay benefit in kind on the electricity provided by their employer to charge a company car
  • Ultra-low emission vehicles are eligible for the OLEV grant which is worth up to £350 under the Electric Vehicle Homecharge Scheme towards the cost of installation of a home charging unit
  • Green company motorists are eligible for a scheme called Optional Remuneration Arrangements which is a similar salary sacrifice scheme to the Cycle to Work initiative.  This allows employees to exchange a portion of their gross salary pre Tax and National Insurance contributions resulting in a significant net saving each month
  • If you’re just starting your new business and need a business vehicle, then going down the EV route will help in cities (London, for example, will penalise non-EVs) and regardless of setting up as a sole trader or limited company, you’ll get business relief on any payments to claim as expenses that you make on a van or car lease.

The argument about the reluctance amongst motorists to take up new EV technology now seems to be moving away from on-road purchase costs to just concerns over range and the frequency of and access to charging points.  With a range of 300 miles now on most new EVs, even these protests are diminishing.

For a company looking to invest in new vehicles or upgrade their business fleet, green technology is now a very attractive prospect with enough incentives and allowances to overcome the initial purchase cost for the business and real financial benefit to employees who might be looking to dip their toe in the water of electric technology for a new company car. 

Regardless of concerns over the comparative costs of both technologies, the UK government has made a commitment to phase out all new petrol and diesel cars by 2030, a move forward of ten years from its original commitment and with COP26 being held in Glasgow this November, there will be a heightened focus on the commitment of all countries to lowering carbon emissions.  Transport accounts for the highest percentage of harmful emissions in the UK.  It is also the first time that the Paris Agreement of 2015 will be reviewed so businesses and commercial organisations should watch this space keenly for more developments.