Calculating Total Cost of Ownership for an Electric Vehicle Fleet

Sticker shock is a major reason why managers hesitate to purchase electric vehicles for their fleet (in addition to range anxiety). But while many EVs do cost more upfront than internal combustion engine vehicles (ICE) and hybrid vehicles, focusing solely on the price tag is a mistake. In the end, EVs are often the better deal — but you can only know for sure by calculating the total cost of ownership (TCO) of both.

A fleet of electric vehicles shown with different price tags.

In this article, we’ll learn how to calculate the total cost of ownership (TCO) to see whether an EV will save you money over the span of its life in your fleet.

What is total cost of ownership (TCO)?

Total cost of ownership (or TCO) is the net cost of buying and owning a vehicle over its lifetime. This can be calculated for any type of car using the following formula:

Formula for calculating a vehicle’s total cost of ownership.

Here, we express TCO as the ratio of the vehicle’s net cost of ownership over its total lifetime.

The TCO accounts for all of the costs associated with purchase and ownership, divided by the useful life of the equipment.

How to calculate TCO

Here’s the formula in a nutshell:

  1. Add the purchase price, sales tax, financing and warranty costs, licensing and administration costs, insurance costs, and the cost of operating and maintaining the vehicle over the time you plan to own it. Some fleets go as far as including the cost of vehicle downtime due to maintenance.
  2. Subtract any rebates or incentives and the money you will recoup when you write off depreciation and when you sell the vehicle. The result is the vehicle’s net cost of ownership.
  3. Divide the total net cost of ownership by the vehicle’s total lifetime, expressed as either mileage, engine hours, or years of ownership.The result is the vehicle’s TCO.

Whether you choose to express total lifetime in mileage, engine hours, or years depends on your fleet and what you’re trying to analyze. For example, rental car fleets may want to use a mileage-based calculation, whereas fleets with more predictable annual mileages may want to use a year-based calculation.

TCO for conventional vehicle fleets vs. electric vehicle fleets

While electric vehicles typically have a higher upfront cost than a gas or plug-in hybrid electric vehicle, their total cost of ownership can sometimes be much lower – especially in large fleets with streamlined fleet management and robust charging infrastructure.

For example, an electric vehicle fleet utilizing solar energy relegates conventional fuel costs to maintaining solar panels. Since many solar panels require little maintenance over their lifetime (which can be well over a decade), electric vehicles can present a lower TCO based purely on fuel savings alone.

Financial incentives can also help significantly lower the TCO of electric fleets. As a way to decrease tailpipe emissions and alternative fuel vehicles, both federal and state policymakers in the United States offer attractive rebates for electric vehicle sales.

Combined with potential fuel savings and lower cost of maintenance, there are many ways to maintain a low TCO for an electric fleet. In the next sections, we’ll explore how to calculate (and even lower) electric fleet TCO using a number of factors.

Calculating TCO for an electric vehicle fleet

There are many ways to calculate the TCO of a fleet of electric-powered vehicles. For starters, an online calculator can help you figure out and total up the various inputs. Peterbilt offers a simple online calculator that helps you compare the costs between its electric and diesel trucks.

A chart comparing the electric vs. diesel Peterbilt 579

(Image Source)

Determine the number of miles your fleet travels per year and input electricity costs to estimate your annual costs. Factoring in how you’ll use the vehicle is also critical to arriving at an accurate TCO. That’s where vehicle telematics comes in.

Vehicle telematics can provide fleet operators with valuable data such as miles driven, hours of use, and battery electrics or fuel usage. With fleet management software such as CalAmp, managers can access historical utilization trends that will help them calculate the TCO of new vehicles and benchmark the performance of their EVs compared to their ICE vehicles over time.

Factors that affect electric vehicle fleet TCO

As we’ve already seen, many factors can affect electric vehicle fleet TCO beyond the initial purchase price.

Diagram showing six major factors of electric vehicle fleet TCO

Low maintenance, superior efficiency, and federal incentives often make the TCO of EVs lower than you might think – but these are just a few examples. Consider these factors when determining your electric fleet’s TCO.

Initial price

The initial price of an EV is often, though not always, higher than that of comparable ICEs or hybrid vehicles. Though premiums vary by model, an overall higher sales sticker also means an overall higher sales tax.

While that may seem like a big financial barrier, EV pricing is already changing: BloombergNEF reports that falling battery electric costs could result in comparable purchase prices for EVs and ICEs by 2023. As battery electrics continue to improve alongside the increasing adoption of EVs among both consumers and manufacturers, initial prices of future EVs may someday present savings.

Financial vehicle incentives

Several electrical vehicle incentives are available to help encourage electric vehicle sales.

The federal government and many states offer vehicle incentives in the form of rebates, though these may not apply to electric vehicle sales for corporate fleets. The National Conference of State Legislature’s interactive feature Hybrid and Electric Vehicle Incentives can help determine if purchasing electric fleet vehicles would qualify for EV cost-reduction programs.

As of 2022, the federal government also offers a Commercial Clean Vehicle Credit as part of the Inflation Reduction Act.

Depreciation rates

Many of today’s EVs depreciate faster than ICE fleet vehicles. One reason for this is the pace of changing EV technology – EV drivers may be early adopters of new vehicle trends and may have concerns about range and battery lifetime in older models. Recent tax credits also factor in, because these incentives generally apply to the purchase of new rather than used vehicles.

iSeeCars examined the depreciation of EVs coming off lease after three years and found the average depreciation was 52.0% compared to 39% for gas-powered vehicles. Of course, depreciation rates vary with the vehicle model: for example, the Tesla Model 3 only depreciates by 10% over three years.

Taking advantage of the Commercial Clean Vehicle Credit can also help reduce the impact of depreciation.

Vehicle maintenance costs

An EV’s low vehicle maintenance costs often make up for its sale price premium.

The drivetrain of an ICE has more than 2,000 moving parts, most of which will need maintenance or replacement over the vehicle’s lifetime. By contrast, an EV has only 20 moving parts.

Even though EVs will still require new windshield wipers and tire rotations like any other car, they don’t require oil changes or transmission or catalytic converter repairs. Their brake pads can also last longer due to regenerative braking. Further, there’s no need for emissions tests.

But what about the numbers? According to AAA, the average EV costs about 6.6 cents per mile to maintain compared with 8.9 cents per mile for a gas-powered sedan, almost 35% more.

Replacing electric vehicle batteries

Replacing electric vehicle batteries can cost $15,000 or more. Thankfully, it’s a cost that only very few electric vehicle owners will have to face: According to Consumer Reports, the average lifespan of electric vehicle batteries is around 200,000 miles, which far exceeds the lifetime mileage of most vehicles.

The price of electric vehicle batteries also continues to drop, which will eventually make replacing electric vehicle batteries a much less intimidating prospect. Future advancements in electric vehicle battery capacity may also help extend their lifespan even further, making replacing batteries even more infrequent.

Electricity costs

This figure isn’t always consistent since electricity prices vary by region. However, as a general rule, the Department of Energy (DOE) estimates that it costs about half as much to drive electric models than conventional cars or hybrids with internal combustion engines.

The DOE’s eGallon calculator lets you compare the cost of “fueling” a vehicle with electricity vs. gas. The DOE bases this on residential electricity rates, which are usually higher than commercial rates, so you’ll likely save more. According to the calculator, the average cost of a gallon of gas in California is $3.56, while the eGallon equivalent is $1.86. In Massachusetts, however, the costs are $2.63 vs. $1.96.

Of course, charging at off-peak hours costs even less. You can also leverage electric infrastructure for employee benefits, or a customer-draw business model could be used to offset electricity prices (as seen at Tesla Supercharger locations).

Strategies for lowering electric vehicle fleet TCO

Since there are many factors that determine electric fleet TCO, there are also many factors that can help reduce it.

Diagram listing five ways to lower TCO for an electric vehicle fleet

Most cost reduction strategies involve assessing your current charging equipment and infrastructure since these present the most variable costs of electric car ownership.

However, as we’ll see shortly, these work best in tandem with fleet management tools to help organize charging plans and take advantage of the most cost effective charging times.

1. Check your charging equipment

Vehicle charging equipment is perhaps the biggest factor in your electric fleet’s TCO.

Even if your current solution is working fine, you may run into trouble if it can’t scale to a higher electric vehicle battery capacity or future electricity demand. Warning signs of a need to upgrade include fleet disruptions or unpredictable electricity consumption costs.

2. Upgrade your charging equipment

Upgrading to a better electric fleet charging solution can make a world of difference to both your TCO and long-term scalability. Though there are many charger options available, some eligible chargers offer cost-saving incentives.

You may also want to consider alternative means of electric power generation. While grid-based systems benefit from reliability, these systems still tie you to the demands and pricing of the electric power grid.

As a result, many fleets leverage solar power and other alternative sources of electric power. Combined with federal incentives and rebates, these solutions can even further reduce “fuel” costs and, by extension, TCO.

3. Develop a charging plan to leverage off-peak times

If your charging equipment uses energy from the grid, then the grid’s electricity generation capacity will be a major factor in your cost equation.

Since demand varies throughout the day, so do electricity generation capacity needs. As a result, distributors usually charge different rates during peak and off-peak times of electricity usage. This can penalize you for charging during peak hours, which will further increase your TCO.

Off-peak hours are generally from 7 PM to 7 AM – in other words, nighttime. Simply switching your charging time to night while leveraging solar or other alternative resources during the day can make a huge impact.

4. Train and educate your staff

Electric fleet operators and fleet drivers should receive proper training to use different charger options and other ground support equipment, as well as how to optimize battery usage in their vehicles.

Knowing when to recharge can also make a big difference, as battery lifespan can rapidly decrease if you consistently keep battery levels below a certain percentage. Staff should also know when (and when not) to charge EVs if your charging plan leverages off-peak hours.

5. Use an EV management application

EV management applications with vehicle telemetry can allow fleet managers to remotely track battery charge levels throughout their entire fleet. This allows them to choose more optimal charging times and adjust charging plans according to the most accessible chargers and greatest need.

Management applications can also track battery performance over time and even help indicate when it’s time for equipment maintenance. The more data fleet operators have, the more they can optimize their operations and reduce their TCO.

Lower your electric vehicle fleet TCO with CalAmp

Most fleet managers have already begun to electrify their fleets or plan to do so. As the market share of EVs continues to increase, their TCO is likely to trend downward. In 2020 McKinsey & Co. estimated that EV TCO could be 15% to 25% lower than that of comparable ICE vehicles by 2030.

Don’t let their sticker price fool you into thinking they’re not a good value. Discover how CalAmp's application can help you manage your EV or mixed fleet.

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