The EV Hokey Cokey

Tuesday 22nd March, 2011
The EV Hokey Cokey

You put the batteries in,
You put the batteries out
In out, in out.
Or shake it all about?

This is the dilema facing EV buyers around the world as they choose how to pay for their new electric car.

If you want the batteries in, you can buy something like the new Nissan LEAF - which, for an on the road price of £23990 (after £5k UK Government subsidy), comes with 24kWh of Li-ion cells on board providing a maximum range of around 100 miles. You buy the car, you also own the batteries.

If you want the batteries out, you can alternatively look at the Renault ZoE which, for an estimated price of around £13000 (after subsidy), doesn't actually include the cost of the 22kWh of cells at all. The slightly smaller battery pack provides the same claimed range as that in the LEAF but, instead of buying it with the car, it is leased separately for around £70/month.

The final option, for those who wish to shake their battery about a bit, is to look at a provider such as Better Place who provide electric cars with switchable battery units. This allows the EV owner to pull into their local Better Place depot, like a car wash, and get their batteries swapped out on the road - saving inconvenient time lost when charging in the day. The Renault Fluence Z.E. is a car that is available in a compatible format but I'm told, unfortunately, that Better Place currently have no plans to come to the UK. Building a Better Place depot costs the thicker end of £1m and you need around 100k compatible electric vehicles on the road to justify this investment.

So, of the two remaining options, which is the best for UK buyers? Well, as usual, it depends...

The main problem for EVs is that, once you build a car and add a massive Li-ion battery pack, it becomes very expensive. In the case of the LEAF, you end up with a car that costs £28990, almost the same as an Audi S3 Quattro (£30485), but only has a range of just 100 miles. Thankfully the government subsidy reduces this by another £5000 but £24k will still buy you another nice, quiet, eco car like the Lexus CT-200h. When buying a laptop, many customers decline the option of purchasing a spare battery which may only have a retail price of around £40 for a 44Wh battery. When you're talking about needing a boot full of these to reach a 24kWh capacity, like that in the LEAF, then the price becomes even more of a challenge.

Most estimates put the cost of EV Li-ion batteries in the region of £500 per kWh of capacity, which would put the LEAF battery pack somewhere around £12,000 and the slightly smaller one in the ZoE at approx £11k - an immediate saving to the buyer of around £1000. Looking at the 2 offers in parallel confirms the numbers involved. Take the ZoE at £13k and add on the approx £11k battery pack and it adds up to...£24k - the same price as the LEAF. No surprise then that Renault and Nissan are technology partners and these 2 cars have a lot in common.

You can tell people there's always a premium for new technology as much as you like but, ultimately, you've got a vehicle that isn't as practical as other cars in the same price bracket. You can just proceed and sell the car as is, hoping to find early adopters who are willing to pay the price. Alternatively, you can do as Renault have done and present things a little differently by leasing the battery as a separate item.

The majority of new cars these days are now bought using a PCP option which offers a lower monthly fee in exchange for a final payment, or balloon, that the buyer can optionally make at the end of the contract. If they'd like to keep the car, they make the final payment. If they don't they can get a new car, on a new contract and start again. Alternatively, the buyer can just hand the keys back and walk away. This more flexible way of buying has allowed buyers to change from 5yr Hire Purchase style agreements to much shorter terms and change their car more often - also helping manufacturers sell more new cars. Alternatively, by sticking to a 5yr term, the buyer can afford to drive a better car than they might have been able to afford on an HP agreement.

(if you know everything about PCPs, this next section may be like teaching Granny how to suck eggs...bear with me)

Working out a PCP payment is quite simple, if you know how and have the required data. A key figure is the residual value (RV) of the vehicle after the required contract term. This is basically how much they predict the car will be worth after that length of time. In the case of the LEAF, it's expected to be worth around £9500 after 3yrs and 60,000 miles - just 33% of it's new price. Take that further onto a 5yr and 100,000 mile contract and it will have lost about 80% of it's new price and be worth around £5500. These numbers are what are used to put a "Guaranteed Future Value" onto your PCP contract. They'll usually offer you a little less than the predicted RV so, at the end of the term, the car is worth more than the balloon payment and you'll either buy it off them in full or give it back to use as a deposit towards your next car. So, on these examples, we'll use Guaranteed Future Values of £9000 for a 3yr PCP and £5000 for a 5yr PCP.

Putting those numbers to one side for a moment, we now need to find you a loan. The car is going to cost you about £24000 plus any payment protection insurance (PPI) plus interest over the term. So you'll need to borrow money to pay for all this, less any deposit. To simplify things, we'll ignore PPI and go for a straight loan for the cost price of the car less a 10% deposit. £24,000 minus 10% gives is a required loan of £21,600.

We can now feed this into a loan calculator like this one ( http://www.moneymadeclear.org.uk/tools/loan_calculator.html )to give us an estimate of payments on this amount. Using the £21600 loan amount, a fairly average interest rate of 9.9% and a term of 3yrs we get a monthly payment of £692/mth and a total amount payable of £24901. Changing to a 5 year term, the payment drops to £454 but the total amount paid rises to £27205.

But these numbers are for a loan that is paid off at the end of the term. With a PCP we don't need to pay it all off as we have a balloon payment at the end. The total amount payable won't change, you'll just have a big optional payment at the end. So on the 3yr loan you'd make payments up to the £9000 final payment. On the 5yr loan, payments up to the £5000 final payment.

So the total amount of the monthly payments on the 3yr loan is 24901-9000=£19,901 and on the 5yr loan it is 27205-5000=22205. Based on that we can work out the monthly payments on the 3yr agreement would be around 19901/35=£568.60 or 22205/59=£376.76 on the 5yr agreement.

Using a PCP facility has saved the buyer around £123 over 3 years or £77.24 over 5 years - the interest and lower RV wiping out some of the PCP benefits over the longer term.

In real life I know of buyers who've taken a LEAF with extras, using 10% deposit and payment protection over 5yrs for around £479/mth.

This all adds up to a lot of money for a second car. So how are things going to be different for the Renault ZoE?

With the ZoE, Renault have decided to sell the car without a battery and then lease that part separately - effectively splitting the product into 2 different parts. As the car only costs £13k, depreciation in monetary terms. If we apply the same RV expectations to the ZoE, we now see values of £4333 or £2600 over 3yr/60 and 5yrs/100.

So with the LEAF over 60k miles, you lost £25,990-9500=£16490 in depreciation.

Compare that to ZoE and you lost £13k-4333=£8667 in depreciation over those same 3yrs and 60k miles.

But the ZoE required you to lease the battery product separately, at £70/mth. So 36 payments need to be added to our losses. =36*70=£2520

So, over the 3yr term, the ZoE saves a cash buyer 16490-8667-2520=£5303 or over 132,000 miles of electricity at 4p/mile.

Over the 5yr term, we're looking at 25,990-5500=£20490 in depreciation on the LEAF.

So, over the 5yr term, a ZoE cash buyer with depreciation losses of 13000-2600=£10400 may actually save 20490-10400-(60x70)=£5890.

But the savings don't just end there, most of our buyers will be taking finance and paying interest on their purchases. Let's work out the finance costs on the ZoE.

In our LEAF example, above, we put down a deposit of £2400 so I'll keep this constant and therefore we need to borrow 13,000-2400=£10,600 to buy the ZoE.

Over 3 yrs, at the same 9.9% this works out to be £417/mth and a total amount payable of £14,987 - some £275 cheaper than the LEAF and still £200 cheaper even after paying the £70/mth battery lease.

Over 5yrs, at the same 9.9%, this works out to be £273/mth and a total amount payable of £16,373 - some £181/mth cheaper or £111 cheaper after paying the battery lease.

The PCP costs over 3yrs, and a predicted final payment of £4000 would therefore be £313.91 or, over 5yrs with a final payment of £2000, £243.61/mth.

So, adding in the battery payments, the ZoE might cost £383.91/mth over 3 years vs. £568.60 for the LEAF. Over 5yrs it's £313.61 for the ZoE vs. £376.76 for the LEAF.

Clearly the ZoE works out significantly cheaper, assuming both cars have similar percentage RVs. Also, if you choose to keep the ZoE at the end of the term, the final payment is just £4000 after 3yrs or £2000 after 5yrs, compared to £9500 and £5500 for the LEAF.

Ultimately, the total amount payable over 3 years is £2400+14,987+2520 = £19,907 on the ZoE and £2400+24,901+0=£27,301 on the LEAF a saving of £7394.

Over 5 years the numbers work out £2400+16373+4200=£22973 on the ZoE and £2400+27205+0=£29,605 a saving of £6632.

Clearly, buying the ZoE over 3yrs will save you enough cash to make battery lease payments for nearly 9 additional years (until the car is 12yrs old) and actually cost you £2/mth less than the LEAF would to take on a PCP over 5yrs!

Finally, if you wanted to take things one step further, you could potentially buy a ZoE instead of a LEAF and then buy a 3kWp solar panel with the savings, allowing you to charge your new car, sustainably, from free solar power. With a solar panel like this, connected to a National Grid feed in tariff, you could potentially bank more than enough money to pay that £70/mth battery lease for life. You could even get that solar panel right now, whilst you're waiting for the car to be launched, and bank all the electricity savings in the meantime.

One of the big factor here is the residual value of the cars. Those for the ZoE may be lower, or even higher, than predicted. We've just applied the same percentage depreciation as that on the LEAF. In real terms, though, we've put a guaranteed future value of £4k on the ZoE and, even if that final value turned out to be zero (it won't) and an extra loss of £4000, you could still save nearly £3000 over 3 years when compared with the LEAF.

(Note: since drafting this article, the price of the Nissan LEAF was raised to £30,990, or £25,990 after subsidy. As updated RVs are not available since the price change, I'm, publishing the article as is but feel free to add the extra £2k where appropriate).

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