Total Cost of Ownership Advantage For EVs? Yes, In Time

If more car shoppers were to fully understand a car's total cost of ownership, they may more readily consider an EV.

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Stewart Stropp

By: Stewart Stropp

Dec 6, 2022 at 8:22am ET

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If electric vehicles (EVs) are going to move beyond early adopters and capture mass-market share, the industry will need to continually overcome key obstacles, not the least of which is helping shoppers better understand the total cost of ownership (TCO) proposition.

About the Author: This article was provided to us by J.D. Power and written by Stewart Stropp, Executive Director, EV Practice, J.D. Power

Vehicle cost is a critical conversation for people who want to make rational investments in how to get from here to there. In an apples-to-apples environment, the process is straightforward. Shoppers make a list of vehicles that they want to purchase, then contrast the variables between those vehicles.

But comparing EVs to internal combustion engine (ICE) vehicles doesn’t fall into the apples-to-apples basket. Even comparing the value proposition between EVs can be challenging.

The cost of ICE vehicles, for example, is a function of the manufacturer's suggested retail price (MSRP) plus any markups (or discounts) offered by dealerships at the point of purchase. After that, buyers drive off the lot, rolling the dice on what might happen to the cost of gasoline over the lifecycle of ownership.

Verifying Varying Variables

Weighting the economic implications of buying an EV can be more nuanced and requires different considerations, some of which are new to many shoppers. Most consumers correctly perceive EVs as more expensive than comparable ICE offerings in terms of MSRP. They’re told, however, that EV owners can come out ahead due to lower running costs (fuel and maintenance outlays).

That said, the devil is in the details. Some EVs will be eligible for economically important tax breaks scheduled to take effect in 2023 via the Inflation Reduction Act (IRA). Then again, other EVs won’t.

Adding more complexity, who buyers are–and where they’re located–will also play a key role. While IRA sets national income thresholds for tax-credit eligibility to make EVs attractive to a broader demographic, different states have established their own incentives. In result, significant cost variances will likely emerge when buyers in different parts of the country purchase the same model.

Resolving Confusion from Rising Complexity

All of this brings us back to the current need for critically important dialogue between the industry and consumers. Shoppers don't like complexity, and they hate to be confused. According to the J.D. Power 2022 U.S. Electric Vehicle Consideration Study, one in three EV rejecters cite lack of information as a key purchase deterrent. More specifically, they point to the need for clarity on incentives, tax credits and subsidies, utility rate adjustments and resale value, among other variables.

To be fair, some industry stakeholders have done a good job unpacking the factors determining TCO. Others–perhaps most–have significant opportunities to provide more clarity and context for engendering consumer confidence in EV purchases.

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The good news for those who take on the challenge is mastering the TCO conversation will likely lead to competitive differentiation. There’s a tremendous delta between those considering EV purchases and actual adoption. The percentage of shoppers who say they’re "very likely" to consider an EV for their next vehicle purchase or lease has climbed as high as 29% this year—10 points higher than at the start of 2021. But actual EV adoption is around 6% of all vehicles sold in 2022.

One of the keys to harvesting a higher percentage of consumers considering EVs revolves around improved conversations about TCO.

Source: J.D. Power

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