ICE or Electric?

We explain the cost differences between ICE and electric

If you've previously bought a new car or van you'll be familiar with the significant running costs buyers typically incur in the first 3 to 4 years of ownership due to depreciation.

Electric vehicles are relatively new to the mass market and their used prices are yet to stabilise, so depreciation is potentially a major risk for early adopters of electric vehicles.

Having said that, second-hand values for electric vehicles tend to be reasonably strong compared to ICE powered vehicles, though this may not last as manufacturers overcome a combination of shortages of battery supplies and fluctuating demand for the product.

Equally, improvements in battery technology (longer range/faster recharge times), plus other factors such as autonomous driving capabilities, may combine to make electric vehicles that are bought now less desirable than newer models launched in the next few years.

Against this complex background, how do you calculate the cost of buying and running an electric vehicle compared to its ICE powered equivalents?

What's In The Running Costs?

For an ICE powered car or van the costs are fairly straightforward and well established. They comprise:

• Depreciation - the difference between the price you pay and the price you sell at
• Maintenance and servicing
• Insurance
• Vehicle Excise Duty (the 'tax disc')
• Fuel
• Finance charges if you take out a loan to fund the vehicle

With an elecric vehicle the breakdown is the same, but in different proportions.

Do the maths on an electric vehicle and you'll probably see:

• lower fuel costs because electricity is typically cheaper per mile driven than petrol or diesel
• lower maintenance costs because electric cars typically have fewer components than petrol, diesel or hybrid vehicles
• higher insurance costs, as electric cars have a more sophisticated body structure which is more expensive to repair, especially for battery compartment collisions
• a different profile on depreciation because of a shortage of EV supply, creating a healthy (if volatile) second-hand market.

When supply catches up with demand it's possible that electric vehicle depreciation will begin to stabilise into a pattern more akin to that of ICE powered vehicles, but ICE vehicles may in themselves suffer higher depreciation when:

• the popularity of EVs grows
• we move closer to the UK Government's proposed ban on the sale of ICE vehicles
• air quality taxes (congestion charging, etc) increase to make up for lost revenue from petrol and diesel fuel
• more low emissions zones are introduced around the UK

and all of these take their toll on the desirability of ICE powered vehicles.

One of these factors could be key to electric vehicle take up in the UK. The Government has to somehow make up for the revenue which will undoubtably be lost through declining petrol and diesel fuel sales.

Taxation already accounts for around 60% of the price of a litre of fuel and generates over £20billion in income each year for the Government (though the post COVID-19 era may well have affected this revenue)

It's still likely, though, that some alternative form of tax will need to be paid by electric vehicle drivers in order to make up for the loss of revenue from ICE fuels and, as yet, how this will work has not been made public by the Government. It could take the form of:

• higher electricity bills for everyone not recharging through low/zero emission methods such as solar power
• higher annual tax disc fees for electric vehicles (electric vehicles initially began with much lower tax disc rates)
• higher initial registration charges for electric vehicles when new

So How Do We Calculate Costs?

Getting back to vehicle running costs in general, there are specialists with expertise in forecasting vehicle running costs and we have partnered with CAP-HPI to provide running costs analyses for comparing ICE and electric vehicles.

In our online tool we calculate the running costs for ICE and electric vehicles taking account of forecasts for:

• Depreciation
• Maintenance
• Insurance
• Fuel

For depreciation, market variations between ICE and electric vehicles are based on CAP-HPI forecasts for second-hand values of each type of vehicle.

CAP-HPI looks at second-hand values for each type of vehicle based on equal mileages and bodywork/interior condition.

We take these second-hand value forecasts and work out depreciation based on the manufacturer's published list price, plus delivery charges and other on-the-road costs.

Don't worry about discounts - if you didn't pay the manufacturer's list price for your vehicle you can tweek our calculator to use your own on-the-road price instead.

Similarly we use your own insurance premium quote, so insurance costs represent you rather than a model driver.

For ICE vehicles you can use your own local fuel costs and for electric vehicles the kWatt charge you get from either;

• your electricity company when charging overnight; or
• your 'away' charging subscription costs.

You can also use your own fuel consumption rates (miles per gallon) or your electric vehicle's range on a full recharge.

For maintenance and servicing for both ICE and electric vehicles we use CAP-HPI forecasts based on your annual mileage.

Using Our Calculator

Setting up a cost comparison is simple;

• set your annual mileage
• pick your choice of ICE, hybrid and electric vehicles (you don't have to choose all types - you can just look up electric vehicles)
• enter your fuel and insurance costs (we'll give you starter numbers which you can change)

We'll do the rest, just click on this link for cars to get started (or this one for vans).

 Money, Money, Money ...

And speaking of finance, theres a whole new way of funding a vehicle being proposed for EVs. Click here to read more about it on our DriveSmart website.

Finally, there's another financial aspect to consider - over half of all new vehicles in the UK are bought by employers for their employees to drive, so company vehicle taxation has an impact too.