Both globally but also in South Africa one of the narratives you will come across for why you should adopt BEV’s (“battery electric vehicles”) is in relation to TCO (“Total Cost of Ownership”). For those who are not familiar with the term, TCO looks at what is the total cost to purchase and operate a vehicle over a period of time.
In this article I would like to unpack this topic and find out if it actually is (or could be) cheaper to own and operate a BEV in 2022, when compared against ICE (“Internal Combustion Engine”) vehicle in South Africa.
For the purpose of this article I have selected two BEV’s in the market, one being the cheapest priced vehicle in the BEV segment (still quite expensive considering the typical purchase price of vehicles in South Africa) and the other in the lower end of the luxury segment (product available from a established automotive manufacturer). To make sure this is an apple to apple comparison, I have intentionally selected BEV’s which have an equivalent ICE variant available in the market.
I have applied the following assumptions to reach the conclusions in the opinion piece (disclaimer: the numbers included are based on secondary research and my own high-level calculations. To be further refined as time and data becomes available):
- Purchase price of the vehicles is inclusive of “VAT”, “on road fees”, “administration fees”, “maintenance plan (providing coverage for five years)” and “license & registration fees”.
- The ICE vehicle selected runs on petrol for which the cost is set at ZAR26.16 (based on 95 ULP, Gauteng pricing, estimated average cost over five years).
- Price of electricity is set at ZAR1.53 (based on pricing from City of Johannesburg, estimated average cost over five years) for home charging and ZAR7.26 for fast charging (based on pricing from a fast charging infrastructure provider in SA, estimated average cost over five years).
- Yearly distance travelled by the vehicles are 20,000km (80% of which is local travel (within 150km radius) and 20% for long distance (over 150km)).
- Calculation assumes five year ownership of the vehicles.
- Running costs of a vehicle consists of “insurance” and “electricity” for BEV’s. For ICE vehicles they consist of “insurance” and “petrol”.
- Maintenance costs is assumed to be ZAR0.00 as the vehicles are under maintenance plan, which provides cover for the duration of the ownership of the vehicle (five years).
- Resale value of the vehicles is assumed to be at 70% of its original value after five years (this might be a bit optimistic, but again happy to revise as information becomes available).
- All vehicles are fully financed at 9% per annum (no deposit).
- Currently no incentives are available for BEV purchase in South Africa hence nothing applied on this front.
- Costs relating to tyres, carbon tax and other items are also not included at this stage (to be added later once more data is available).
With the above in mind the following conclusions were reached.
ICE vehicle A vs BEV A (cheapest in BEV segment)
ICE vehicle B vs BEV B (lower end, luxury segment)
For the comparison between ICE vehicle A and BEV A, you are looking at approximately 6% difference in TCO. While for the second comparison between ICE vehicle B and BEV B, you are looking at approximately 13% difference in TCO. For me this was quite a surprise (I assumed it would be a bigger difference) since the purchase price of the vehicle is 34%-39% higher when comparing ICE vs. BEV.
The reason for the smaller then expected difference is due to the “Running Costs” included in both comparisons, which is significantly lower for BEV’s when compared against ICE vehicles (due to the eye watering cost of fuel).
So is it cheaper to own a battery electric vehicle in South Africa in 2022, when compared against an internal combustion engine vehicle? If you purely look at it from a financial perspective today (picture starts looking different beyond five years) then the answer right now is no, but there are other factors to consider which influences purchasing decisions.
Although not comprehensive other factors unaccounted for in the financial analysis (to be unpacked in subsequent opinion pieces) which is becoming important to consumers include:
- Climate impact of the selected mobility options (potential for reduction of emissions over time).
- Availability of complimentary assets (e.g. self-generation at home, vehicle charging at work).
- Reputation / aesthetics of adopting electric mobility.
Taking all of the above into consideration the question to ask is, will ICE vehicles TCO continue to be competitive against BEV TCO? Most likely not and that is due to:
- Over time the purchase price of BEV’s will go down (due in part to technological advances and production volumes increasing).
- Maturing of the market (i.e. understanding the risks associated with BEV’s better) could translate into more competitive pricing for vehicle insurance.
- Reduction in custom duties to bring it in line with ICE vehicles (from current 25% to 18%, which could immediately tip the TCO scale towards BEV).
- Potential for preferential interest rates to be given for purchasing of BEV’s (private sector initiatives to support decarbonisation of our economy, translating into reduction in scope 3 emissions).
- Consumer acceptance of BEV’s accelerating, driving up adoption rates which will have a compound effect over time, positively influencing price and desirability.
For now what all of this means is in South Africa you will pay a premium if you are an early adopter of BEV’s, but as time goes by you can expect BEV’s to become attractive even to the point of becoming the preferred choice for vehicle ownership.
AUTHOR: Hideki Machida is the Lead for Mobility 2030 SA at KPMG South Africa.