TCO, the three letters that make you immediately sign up for an electric company car

When purchased, electric cars remain much more expensive than thermal models. But those who have a company car adopt them at high speed. The explanation is in three letters: TCO.

Times are tough for corporate fleet managers. When delivering new company cars, delays may exceed one year. And while waiting to receive them, temporary vehicles are rarely available or overpriced.

On the cost side, the new leases are significantly more expensive than before, with the key unfortunate disappointment for employees: the model of their current company car no longer corresponds to the budget set aside by their company.

In addition to these difficulties, fleet managers and company car owners still have to deal with an underlying trend: electrification of the vehicle fleet. In the coming years, nearly one million company drivers will have to switch to electric models with all of them uncertainties that this major change entails at the technical level – autonomy and recharging options – but also financially. Electric cars remain far more expensive than their petrol or diesel versions, according to the traditional method of calculating prices with leasing companies.



The TCO method, on the other hand, incorporates other elements, such as fuel and energy costs, as well as the tax treatment for the employer and the employee.

Total cost of a lease

However, companies are massively switching to “green” company cars. And bring their employees in the wake. Today, more than half of the company cars ordered are equipped with an electrical outlet (plug-in hybrid or full electric model). This strong trend is mainly explained by an acronym of three letters: TCO. “From now on, the leasing budget is based on TCO, which changes everything,” emphasizes Bart Hollebekkers, managing consultant at SD Worx, an HR service company.

TCO stands for “total cost of ownership”, ie the total price of a leased car. This concept differs fundamentally from the traditional way of calculating leasing priceswhich includes the car’s purchase price, insurance and the estimated costs of maintenance and repairs.

The TCO method, on the other hand, incorporates other elements, such as fuel and energy costs, as well as the tax treatment for the employer and the employee.. But TCO is not a fixed set of costs. “You can go as far as you want. Some companies also add contract expiration costs or expenses for repairing dents or damaged rims that occur at the end of the lease,” points out Sven Pauwels, spokesman for the leasing company. ALD Automotive. In this case, we are talking about TCU (“total cost of use”).



“The driver must assess the number of kilometers he will cover per year. If the contract is established on the basis of 30,000 km per year, and in the end only performs 15,000, the height of the TCO changes significantly.”

Sven Pauwels

Spokesman for the leasing company ALD Automotive

More expensive to buy

But Integrating fuel and energy costs into the cost calculation is not straightforward. “The driver must assess the number of kilometers he will cover per year. If the contract is established on the basis of 30,000 km per year and ultimately covers only 15,000, the height of the TCO changes significantly. In general, the comparative advantage of electric cars increases. with the number of kilometers driven, but this is not the case if the driver almost always recharges his battery at relatively expensive public terminals, ”explains Sven Pauwels.

It does not remain that way electric cars remain significantly more expensive to purchase, than the comparable hybrid or thermal versions. That The cheapest Volkswagen Golf (petrol) costs 32,415 euroswhile the corresponding electrical model, ID.3, is for sale from 44,135 euros. “Electric Golf” is therefore almost 40% more expensive to purchase.

At Renault, the price of the Megane E-Tech (electricity) is no less than 37% higher than the price of the cheapest version (petrol). These differences only apply to the largest / expensive models. Thus, the price difference between the big BMW X5 SUV and its electric sister iX (88,700 euros) is 27%.

Electricity costs

This higher purchase price explains that electric cars almost always have the downside compared to thermal versions if the choice is based on the traditional calculation method. LIn use, electric cars have a completely different cost structure than petrol or diesel cars. Before you can use it, of course, you still need to install a charging stand at the driver’s home, but these costs are generally included in the lease price. Then the rolling costs are lower.

Thereby, electricity costs per mileage is significantly lower than the cost of gasoline or diesel. Until last year, this difference often exceeded 50%. Meanwhile, this benefit has shrunk to about 35% after the post-war energy crisis in Ukraine. The price of electricity has doubled in one year, while the price of petrol and diesel has “only” risen by about 40% due to reductions in excise duties.



“The brakes on an electric car, although heavier on average than a thermal model, generally wear less quickly.”

To this advantage, the tax authorities are adding a favorable treatment reserved for drivers of “full” electric cars: Petrol and diesel costs for hybrid models will only be tax deductible up to 50% from next January.

Less maintenance

Electric cars are also cheaper in terms of maintenance. The explanation? An electric motor is much less complex than a petrol or diesel engine. In addition, one automatic gearboxas the electric models are always equipped with, also requires less maintenance than its manual alter ego.

Some recurring maintenance costs, like the oil change, also disappear from the invoice. Moreover electric car brakesalthough on average it is heavier than a thermal model, it generally wears less quickly because the brake acts more on the engine, which in passing allows the battery to be recharged a bit.

Opposite to, tire wear an electric is faster due to its higher weight, but also more powerful starting acceleration, which seems to please some impatient drivers when the traffic light turns green.

Tax revolution

But the main element that distinguishes TCO from traditional leasing prices is none other than taxation.. Last year, Federal Finance Minister Vincent Van Peteghem (CD&V) launched a revolution in the corporate car market: from 2026, only fully electric cars will still benefit from a tax advantage.



The benefits that electric cars already have (…) are a lower registration tax and lower rates for the benefit in kind (…).

However, this discrimination will begin to have its effects from 1eh next January: tax benefits for petrol and diesel models will be gradually reduced and completely disappear by 2026. At the same time, the right to deduct for electric cars remains set at 100%, at least until 2026.

But the tax benefits do not stop there. Next year, the CO₂ contribution, which is a social solidarity contribution invoiced to the employer for each company car, will thus be greatly increased for petrol and diesel models and for the employees the benefit of the company car in relation to the normally taxed salary will also disappear. On the side of electric models, the CO contribution will only increase very slightly.

The advantages that electric cars already have over thermal models, and which will continue in the coming years, are a lower registration fee (TMC) and lower rates for benefits in kind (ATN)which employees pay for the use of their company car.

XC40

The impact of all these benefits of electric cars on the monthly cost of a company car is most obvious for the Volvo XC40, the most popular company car in the country, for the BMW 3 and for the BMW X1.

The Volvo XC40 model, produced in Ghent, is the most popular company car at the moment.
© Alan Hao / Costfoto / Sipa USA

It is one of the only Volvo models available in all three versions: combustion, plug-in hybrid and full electric. The XC40 is therefore very well suited for the exercise of measuring the effect of TCO on the cost of company cars (see table). While the electric version is the most expensive in purchasing the three models, it is the cheapest according to the TCO calculation..

It prevents. Although electric cars top the rankings according to the TCO calculation, their costs are significantly higher than the leasing budgets used today. It creates friction, states SD Worx consultant Bart Hollebekkers: “Employees will no longer be able to choose the same company car as in the traditional system unless the employer agrees to bear higher costs. TCO is” yes, higher than leasing rate. But we must continue to compare apples with apples. The TCO often integrates all costs as opposed to the traditional leasing rate. “

Summary

  • Despite the rise in leasing prices and the high purchase prices of electric cars, companies are massively converting their car fleet to “e-cars”. This is due to the new method of calculating costs: TCO.
  • TCO covers all costs associated with a car, including fuel and favorable tax schemes. These last two elements are largely to the advantage of electric cars, which thus become cheaper than their petrol or hybrid versions.
  • Nevertheless: Leasing prices for company cars remain high, even in the TCO formula. Fleet managers and HR departments are working to develop a new policy in the area, regardless of whether increased budgets are to be included or not.

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