Electric vehicles made recent news when Trump administration official Larry Kudlow announced their intent to remove subsidies for their purchase. This news might cause businesses providing company cars to their employees to pump the breaks on exploring the environmental future of their fleet. But there’s much more to the electric vehicle conversation than subsidies for going green.
In President Barack Obama’s 2011 State of the Union, he made his plan to curb CO2 emissions known with a pledge to see America as the first nation with one million electric vehicles. There are obvious draws to owning an electric vehicle. But the upfront cost is quite a bit higher than purchasing a standard vehicle. We’ll talk more about what goes into this cost later, but just know it’s a considerate barrier to entry.
As an initiative to overcome this barrier to entry, Congress passed legislation offering subsidies. These subsidies, based on battery size, generally provided consumers with between $7,500 and $4,500 back in taxes. While capped at the first 200,000 electric vehicles per auto manufacturer, this cap was only intended to start a subsidy phase-out paced over six calendar quarters. One full calendar quarter after the company builds its 200,000th EV, the subsidy will be reduced by half for the next 180 days, then 75% for the following 180 days.
Electric vehicles are not cheap but neither is gas. If a company has 100 mid-size sedans in service that on average are driven about 21,000 business miles each year, the company probably spends between $18,000 and $23,000 per year on fuel. The 2019 Motus Fuel Trends Report states that fuel accounted for over 20% of the overall costs to own and operate a vehicle. As a long-term investment, electric vehicles save companies this money.
Another point for the electric vehicle is the associated image. You know a Tesla when you see it in a parking lot or on the road. And, regardless of their driving behavior, the car is a statement. A company with a fleet of electric vehicles offers an environmentally conscious veneer.
Businesses in Europe have also adopted the electric vehicle as their company-provided car of choice. And not just because of how smart they look. Due to emissions-based taxes, companies have taken the creative approach to their pollution problems by cutting down on their travel footprint.
Even with subsidies, the cost of entry is high. After the federal tax credit, the lowest price for a top brand vehicle is $22,490 (for the Nissan Leaf), while the highest is $72,000 (for the Tesla Model X). Much of the price difference is infrastructure. Vehicle manufacturers have had decades to streamline the making of a vehicle that runs on gasoline. Electric vehicles don’t have quite the same process and require different technology. Which is where the second major price point comes in: the battery.
While batteries have been around for quite some time, they haven’t been used to power a vehicle. The demand for electric vehicles has rushed them into a role the technology wasn’t ready to fulfill. Part of this issue is the precious materials, like lithium, that go into a battery strong enough to power a vehicle. Given the prices of those materials and how comparatively inexpensive gasoline powered vehicles are, improvement to battery technologies has gone from low priority to high priority.
Getting over the upfront costs, there are other challenges companies must overcome when adopting electric vehicle programs. One of the main points is the lack of new technology available. Electric vehicle drivers can charge their EVs from the home and many gas stations now have EV charging stations catering to both commuters and long-distance travelers. But, while EV charging stations have grown their presence in the United States, the infrastructure is still in its infancy.
There are several ways to reimburse mobile workers for the fuel costs of their business travel. Some companies offer a flat allowance, the same monthly sum to everyone in their mobile workforce. This reimbursement is less than accurate, but the amount can be averaged to cover the costs of the majority of mobile workers. Some offer a cents-per-mile rate reimbursement, that specifically pays for the miles driven. This is relatively easy because gasoline has been the main fuel source since the invention of the car. Some companies offer a Fixed and Variable Rate (FAVR) reimbursement program. The FAVR reimbursement program takes into account miles driven along with ownership costs like depreciation of the vehicle and registration. But these are tailored to gasoline powered vehicles.
Electric vehicles throw a wrench into those plans. It costs around $540 a year to charge an electric vehicle with an annual mileage of 15,000. The same amount of miles with an average gasoline-powered car would cost about $1,400 per year. Some companies stomach that cost and offer their EV-owning employees the normal reimbursement rate. But if you have any interest in cost savings, you’d consider some kind of cents-per-mile or FAVR program that breaks down the charge costs, perhaps even by region. Still, a uniform electric vehicle reimbursement program is far from the forefront of most business minds.
Vehicle manufacturers are still working on the pain points of electric vehicle production and overcoming the costs of batteries. These factors have made electric vehicles less accessible when compared with other vehicles. These pain points won’t last forever, and in light of the recent news, the future remains bright for electric vehicles.
Many predict a wave of change as battery technology catches up to the electric vehicle need. Nickel has become a new focus in the battery creation process. Additionally, Volkswagen and Ford Motor are teaming up to both save money on development of EV and autonomous vehicles. With a goal of making EV as accessible as gasoline-powered vehicles, VW has a target of 2 to 3 million electric vehicles by 2025. The auto manufacturer has even gone as far as selecting factories in China for the upcoming EV production. Tesla’s sales have exploded in California as other companies (BMW, Hyundai and Kia) announced their electric vehicle plans.
And, while Larry Kudlow may have announced the Trump administration has plans to remove subsidies for electric vehicles, this might not actually happen. Setting aside current turmoil in the White House, Congress passed legislation on these subsidies. The president cannot end them through executive order. What’s more, the recently elected democratic majority in the House of Representatives is more likely to push more laws to boost electric vehicle presence than curb current ones.
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