Consumers are increasingly willing to switch to electric. The number of electric vehicles on UK roads will soon surpass France’s after a huge surge in sales. But as more drivers want to switch cars, many are also wondering if they can afford it.
While cheaper to run, EVs cost more to purchase than other vehicles, leading many to consider them out of their price range. While the number of electric vehicles sold in the UK now exceeds half a million, research by the Green Finance Institute shows that most purchases are made by fleet companies rather than individuals.
“Higher upfront cost of the vehicles, the pace of improvement in battery range, concerns about access to reliable charging infrastructure and perceived complexity of transitioning means many are hesitant about making an Electric Vehicle their next car,”
The average pre-tax retail price for a mid-size electric car last year was €33,300 (£28,914), compared with €18,600 for a petrol car, according to Bloomberg New Energy Finance.
But there are ways to hit the road without spending a fortune.
Electric Car costs. Personal Contract Hire, best known as a lease, is actually a very long-term rental. You can’t keep the car at the end of the term – instead, you pay a monthly fee to keep it for a certain period of time. It’s usually the cheapest way to get on the road, but according to AutoVillage’s Dan Powell, there’s usually a limit to the number of miles you can drive in a year.
The advantages are obvious: with a new car every few years, the depreciation of the vehicle is not the driver’s problem, but the leasing company’s problem.
How much the lease costs depends on the vehicle price, contract duration, mileage, end-of-period value, and whether certain options are included, such as maintenance.
There can be additional costs if the lease is ended early, or if you exceed mileage limits. “You never own the car, and you may be stung for additional money if you go over your annual mileage allowance, or if the car has more than fair wear bumps and scratches,” says Gill Nowell of insurer LV=.
Comparison site Auto Lease Compare has the best price at £261 a month on a four-year contract of 5,000 miles a year.
Somewhat similarly, both hire purchase and personal contract purchase can result in a driver owning a car.
Hire-purchase contracts are divided into down payment and instalments during the contract period. After the last payment is made, the car is yours and can usually be used for up to five years. Here, the transaction price also varies depending on the duration and amount of the initial deposit.
PCP is the most popular type of car finance in the UK, with the difference that drivers can keep the car, trade it in or return the keys at the end of the term. If they want to keep the car, they pay a final “balloon” payment.
“Instead of paying off the entire value of the car over the term of the agreement, you only pay off the depreciation. As a result, the deposit and monthly payments tend to be lower than a traditional hire purchase agreement,” says Powell.
Drivers must adhere to the mileage limit of the PCP contract and must pay a fee if they return a damaged car.
Electric Car costs. For people who work for a company with a salary sacrifice scheme for EVs, considerable tax savings can be made in a way similar to pensions or cycle-to-work schemes.
After the contract is signed and the car is selected, a certain amount is deducted from the pre-tax pay. The employee then pays the benefit in the form of a tax in kind, which is 2 percent for electric vehicles for that tax year.
A payment package provides everything a driver needs to hit the road — car, insurance, maintenance contract, roadside assistance — in one payment.
Simon Down, a tax director at accountants Deloitte, says people sign up for a set period and agree an annual mileage. “Underneath it’s essentially a car lease. A business gets a lease provider to provide the cost and the maintenance, and all the other kinds of bits you need to keep on the road.”
Taking out a £31,000 electric car over three years as part of a wage relief scheme costs employees £420 a month, after deducting tax savings and paying welfare tax, according to Deloitte calculations. A lease agreement on the same car, with maintenance and insurance having to be paid, would cost £619. There are usually penalties if you leave the job and end the scheme early.
“The government has used the company car tax system for a number of years to influence certain behaviour. I think they want it clear that there is a need to get to zero emissions. At the moment there is quite a strong incentive to switch to electric cars,” says Down.
Drivers who don’t want to sign long-term leases can opt for a monthly Netflix-style subscription.
A new kind of business has emerged that includes prices for insurance, taxes, maintenance and other necessities. Contracts are usually renewed monthly, so as long as you keep paying, the car will stay with you.
Prices for the Onto include public charges, the Renault Zoe is £489 a month with a 750 mile limit, and the Vauxhall Corsa-e is £549.
Onto founder Rob Jolly says it has 6,000 subscriber cars. Base prices start from £379 a month, with mass market cars around £500 a month.
Owning a car is fast becoming an unnecessary requirement for consumers.
The development of different types of subscription models in recent years suggests that ownership is less important for the new generation of drivers.
Erin Baker of AutoTrader says younger motorists see cars differently to their parents. “The younger generations coming up and entering the market – probably 18- to 35-year-olds – are increasingly happy to look at subscription models where there is no more than a monthly cost.
“They are used to sharing their lifestyle, they share their music choices on Spotify, they share streaming choices, they share their lives on social media, so they are less bothered about having a private car that is their own.
“And that coincides well with not seeing cars as the same status symbol as older generations did.”
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