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Government jolt helps drive demand for electric fleets

PETROL and diesel cars will continue to form the bedrock of the new car market for the foreseeable future, but the government is making hundreds of millions of pounds available in order to drive an electric vehicle revolution, with fleets leading the way.

The government has earmarked £500m to support the take-up of ultra-low-emission cars and vans – vehicles with carbon dioxide (CO2) emissions below 75g/km – between now and 2020, having already spent £400m encouraging demand. Much of that cash is being used to fund the take-up of electric vehicles through grants to fleets and private users – up to £5,000 off the price of a car and £8,000 on a van – and a national network of recharging points.

The Department for Transport says that demand for such vehicles is “rising sharply”, with more than 25,000 plug-in car and van grants claimed since the scheme began five years ago.

Although data from the Society of Motor Manufacturers and Traders reveals that 6,697 pure electric cars were registered last year, up from 2,512 in 2013 (an increase of 166.6%), the figure represents a tiny percentage of the almost 2.5 million new cars registered in 2014. Registrations of electric vans totalled 673 last year (and 187 in 2013) out of 321,686 units registered.

However, vehicle leasing and fleet management company Alphabet, which launched AlphaElectric in a bid to encourage corporate demand for electric vehicles, believes support for pure electric vehicles and hybrids from global car makers has now reached a “crucial tipping point”, with the involvement of mainstream manufacturers (such as Audi, BMW, Mitsubishi, Nissan, Renault, Toyota and Volkswagen) helping to support credibility and drive interest in the sector.

David Bushnell, eMobility consultant at Alphabet, says: “Over the past year, we’ve started to see a shift in attitudes towards electric vehicles. Once considered unfashionable, expensive and unachievable, electric vehicles have now found their place among corporate fleets.”

Rising to the challenge

Motor manufacturers are rising to the challenge and launching an ever-expanding range of zero-emission electric and ultra-low-emission plug-in hybrid models. Department figures show that 25 car models and seven van models are currently eligible for grant aid, with a further 40 expected to come to market over the next three years.

The government is also putting its money where its mouth is and is encouraging public sector fleets to do the same, by ensuring that zero- and ultra-low-emission models feature on their fleets.

Fifteen government departments have launched reviews of their fleets and, as a result, about 140 plug-in vehicles, such as the British-built all-electric Nissan Leaf, will enter service this year – with the likes of the Foreign and Commonwealth Office, Ministry of Defence, Home Office and the Government Car Service, which provides cars for ministers.

Transport minister Baroness Kramer, who described the move as an “important step”, says: “These cars will save taxpayers money on running costs and will bring low-emissions benefits to our fleet.”

To encourage the wider public sector – including the police, fire service, local authorities and NHS – to follow suit, the government has also made £5m available to enable 35 organisations to add more than 200 plug-in vehicles to their fleets.

The government’s vision is for almost every car, van and bus in the UK to be an ultra-low-emission vehicle by 2050 and Baroness Kramer says she wants to see “the public sector lead by example” on the drive to introduce electric vehicles to fleets, with running costs from 2p a mile.

Oxford City Council has 16 electric vehicles on its fleet, including seven Nissan Leafs and two Citroën C-Zero models. It also uses hybrids as pool cars instead of the authority paying a mileage allowance for staff to drive their own cars on work trips.

Ian Bourton, fleet and business services manager at Oxford Direct Services, says: “Transport has a big part to play in reducing Oxford’s carbon emissions. We identified that use of a low-emissions pool of vehicles would be more beneficial for the council than paying staff a mileage allowance. We have found electric vehicles are very cost effective for short journeys by multiple operatives throughout their various shifts while providing a cleaner form of transport. Fuel cost savings per electric vehicle are in the region of 60-70% across the vehicle life.”

With the government and manufacturers keen to accelerate demand for zero-emission vehicles, and public and private sector organisations responsible for buying significantly more than half of all new vehicles registered in the UK annually, it is clear that fleets have a critical role to play.

As a result, says Simon Staton, director of client management at leasing and fleet management company Venson Automotive Solutions, it stands to reason that once fleet managers turn to electric vehicles, the rest of the UK will follow.

Rival supplier Alphabet recently announced it had taken more than 1,000 electric vehicle fleet orders. Alphabet’s Bushnell claims 2015 will be a “significant year in electric vehicle adoption” and suggests fleet order numbers could double this year.

 “Momentum is building, with customers likely to discuss electric vehicles with us now more than ever. In the next 12 months, we can only expect this interest to continue to increase as established and challenger brands continue to introduce practical and desirable electric vehicle models,” he says. “With continued investment in both charging infrastructure and purchase subsidies for electric vehicle buyers, models have now become a viable option for many businesses.”

Fleet managers are typically risk averse, but operating electric vehicles requires a change of mindset, according to experts. Finding the right operation for the right vehicle is key in all fleet operations and that is no different with electric vehicles. Used for the right operation, electric vehicles can cost no more than a standard diesel vehicle and in some cases less, it is claimed.

While Alphabet is positive about electric vehicles, it is critical for fleets to get the optimal blend of internal combustion engine (petrol/diesel) models and electric vehicles in realising any cost and CO2 savings.

Research by the company among fleet managers identified five key hurdles that needed to be overcome in encouraging electric vehicle adoption: Fleet suitability of electric vehicles, cost, residential and workplace recharging, access to public recharging, and range anxiety.

However, says Bushnell: “Traditional barriers to adoption such as cost, range and charging infrastructure are being removed and electric vehicles are becoming an increasingly viable options for businesses.

“Many organisations wrongly assume that electric vehicles are unaffordable, won’t provide the desired range for their business requirements, or aren’t supported by enough charging infrastructure. Yet if they took the time to look into them in more detail, they would realise that introducing models is actually a lot less risky than first assumed. The typical working range of a pure plug-in on a full charge is about 75 miles, which is more than adequate for most business journeys.”

But, while there is a belief that demand will rise as the UK’s recharging infrastructure improves and as vehicle prices potentially fall as sales increase, Staton says that “so far, businesses remain reluctant” to add electric vehicles to their fleets in big numbers

“The demand for electric vehicles faces a challenge from a range of social and psychological hurdles, such as the high list price of cars, uncertainty over residual values, limited mileage range and worries over recharging infrastructure,” he says.

Barrier to entry

The high list price of electric vehicles when compared with petrol and diesel models, notwithstanding the government subsidy, is frequently highlighted as a barrier to fleet entry.

However, the Energy Saving Trust, which offers free fleet consultancy, says using whole-life cost data “often shows that a plug-in vehicle is cheaper than a conventional vehicle”, with lower fuel costs being the key differentiator (see chart). It points out that electric cars cost £2-£3 to fully charge, while an equivalent petrol or diesel car costs £12-£18 to drive 100 miles.

Although the recent fall in the price of petrol and diesel affects that cost analysis, the Trust highlights that fleets operate electric vehicles not simply because of the cheaper price of electricity, but because they want to reduce their carbon footprint. Additionally, it says petrol and diesel vehicles are exposed to the greater volatility of oil prices.

It’s a view supported by Chris Chandler, principal consultant at Lex Autolease, the UK’s largest vehicle leasing and fleet management company which claims to have over 1,500 electric vehicles on its fleet, more than any of its competitors.

“Any impact lower fuel prices may have on electric vehicles is likely to be short-lived as most observers agree that pump prices will start to rise again in the near future. Looking at a long-term whole-life cost comparison, many electric vehicles will remain more cost effective than their petrol or diesel equivalents as the price differential between electricity and fossil fuels will remain significant,” says Chandler.

West London-based Dendrow International has added three British-built Nissan Leaf models to its fleet. The move was driven by the property consultancy’s team of negotiators, says Matthew Wilkinson, business development manager: “Adding the Leafs to our fleet has been a win-win situation for us. Firstly, there’s the obvious cash savings they generate, but we’ve also noticed a significant spike in enquiries since they entered service.

“I think potential customers see them driving by or pass them while they’re charging and are intrigued and remember them more than they would some other vehicle. The Leafs reflect positively on our company, underscoring our sustainability policy and our commitment to the environment. Our image is very important to us as a business and we always ask, ‘What do our customers think?’ Now they see that we’re being responsible and thinking about the environment through our sustainable use of vehicles and that’s a great talking point and door opener for us.”

Meanwhile, data from used car valuation experts Glass’s Guide suggests that residual values fears may be about to ease, although the contrary view is taken by competitor CAP Automotive – thus further underlining business concerns as to the viability of electric vehicles.

Steadying valuations

Rupert Pontin, head of valuations, suggests that forecast valuations were steadying on electric models such as the BMW i3, Nissan Leaf, Vauxhall Ampera and even the exotic electric Tesla Model S, which has a claimed New European Driving Cycle (NEDC) range on a single charge of 312 miles.

Glass’s calculates that used values for the Ampera, i3 and Leaf are “within a close shout of traditional diesel combustion engines” and those for the Tesla, with its additional range, are “absolutely in line with diesel propulsion”.

But Dylan Setterfield, senior forecasting editor at CAP Automotive, says: “For most drivers, battery vehicles are not fit for purpose, principally due to range limitations, and used values for several models are continuing to fall steeply. We will continue to assume that these vehicles will continue to display higher rates of market deflation and depreciation than normally aspirated cars from the equivalent vehicle sector.

“The best way to improve consumer demand would be for the government to focus on providing benefits for drivers through the life of the vehicle, rather than loading incentives into the purchase of a brand new vehicle.”

While government subsidies are available to help offset the upfront cost of zero-emission cars and other fiscal incentives include not paying vehicle excise duty (colloquially known as ‘road tax’), exemption from the London Congestion Charge and 100% first-year capital allowances, scheduled increases in company car benefit-in-kind tax could hit demand.

Zero-emission electric vehicles have been 0% rated for benefit-in-kind tax, but in 2015-16 they move into the 5% bracket – a number that is rising to 7% in 2016-17, 9% in 2017-18 and reaching 13% in 2018-19. What’s more, despite trade association lobbying, employees pay tax on the price of the car before the government grant is applied.

“The increase in benefit-in-kind taxation from 0% to 13% for pure electric cars takes place over a five-year period and although this will clearly increase costs for businesses and their employees, the intention is to retain a tax benefit for zero- and ultra-low-emission vehicles,” says Chandler.

However, Phil Redman, director of ACFO, the leading UK representative body for fleet decision-makers, believes benefit-in-kind tax rises – effectively a 1,300% tax rise over four years – “will act as a dissuader” to demand.

“ACFO has put pressure on the government. The tax rises should not be coming in before 2020 to enable electric vehicles to become established,” he says. “The marketplace is changing so electric vehicles have to be a factor on fleet managers’ radar. Electric vehicles will always be a niche within fleet operations, but it will be a large niche rather than a small niche.” ?

Plug-in vehicles explained
There are three types of electric vehicle:
Pure electric: powered solely by a battery charged from mains electricity with a single charge range typically of up to 100 miles. The best-known examples are the Nissan Leaf and BMW i3 – the latter also available with an extended range due to a two-cylinder petrol engine.
Plug-in hybrid: a vehicle with a battery for short trips of perhaps 10-35 miles and a standard petrol or diesel engine for longer journeys, with the Mitsubishi Outlander and Toyota Prius leading the way.
Extended range vehicles: powered by a battery with an internal combustion engine generator on board. Cars have a battery range of about 50 miles, which is extended by the generator powering – in the case of the Vauxhall Ampera – a 1.4 litre petrol engine, for up to 310 miles of motoring.

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