This post would be wonky if I could be bothered to do a deep dive into the rococo tax rules for company cars in the UK. Try this. But for once the tl;dr is enough.
For reasons I do not, like Cervantes (footnote), care to go into, the British tax code makes it attractive for employers to offer company cars to middle-rank employees as a perk. The company owns or leases the car and lets the employee use it for private travel and work alike. The employee pays tax (Benefit-in-Kind, or BiK) on the imputed value of the benefit for personal use, on a scale.
The typical split looks like this:
- Company – ownership; book and residual value of the car; depreciation; insurance; breakdowns; maintenance; road tax; choice of the list of available cars, sorted by status.
- Employee – fuel; BiK tax; choice of car from the restricted list, according to status.
- Some employers offer fuel too, which is taxed as a separate BiK.
The result is that 35% of new cars are company ones, about 830,000 of them a year. Add to this the true fleets (rental companies, police, etc), and a remarkable 57% of new cars (pdf) are bought by companies, not individuals.
The story is that the shell-shocked British government has found the time to introduce a reform, from April 2020. This will make the BiK use tax more strongly dependent on emissions. It’s a steep progression now, from 9% to 37%. The rate will now fall to nil for BEVs.
Bank of America /Merrill Lynch have done the math and issued a shiny report with lots of pretty graphs (not public, but they sent it to CleanTechnica). The method is confusing, and the analysts do not provide a summary of costs to the company as opposed to the employee. As far as I can see, the takeaways are:
- For employees, the BiK changes and cheap electric fuel make for very large savings in choosing a BEV or PHEV – up to 22 times less outlays for a Tesla 3 (£659) against a BMW 3 series petrol (£15,137) over three years, a common life of a company car.
- For employers, the low maintenance costs of EVs are still outweighed by the higher purchase price, so that the total three-year cost of ownership (TCO) of the BEV or PHEV is still somewhat higher than that of a comparable ICEV for 10K miles a year. The significant savings to the employee mean that the total joint TCO is similar. The TCO becomes significantly lower (12% – 32%) for a high-mileage fleet use of 20K miles, including fuel costs.
- The employer can now in many cases offer a higher-value package to the employee for less outlay with EVs, appropriating (unless they are dumb or unusually altruistic) a large share of the tax break. (My inference, not BoA’s.)
Here’s the cognitive beauty of this setup, which makes it a great nudge: nobody is acting under sticker price illusion. The employee doesn’t pay any part of the purchase price, and has no reason to consider it. For their employer, the analysis is done by professional HR and finance people who are automatically looking at TCO. (By this I understand purchase price plus all running costs and depreciation; Bank of America confusingly exclude the first.) Their decisions have to be justified by the data. Company secretaries and lawyers will start muttering about “fiduciary responsibility” if the Board does not pursue the cost saving. The effect is supercharged if the employer leases rather than buys the vehicles. Car TCO is just a significant side-issue for most employers. For leasing companies, TCO is the heart of the business. They will very soon be offering EV contracts cheaper.
It’s a pretty safe prediction that the company car market in the UK will shift strongly to electric vehicles from next April. That’s before taking account of competitive new models like the VW ID.3, improvements in the charging network, further moves towards ULEZ zones in city centres, and censorious pressure from teenage children inspired by Greta. The new sales will probably stimulate emulation sales to envious neighbours, some with their own Greta fans.
Does this extend to true fleets? Police have their own use requirements and are culturally conservative. Rental car companies are less so. However, they are in a rather similar position to standard company-car employers, in that it’s the renter, not the owner, who gets the benefit of the low fuel costs. The number of renters who ask for an EV is still, I would guess, quite low from lack of familiarity. But this too will change, more slowly.
The incentives here are specific to the UK and the same effect won’t be seen in the USA. But there are still many US fleet operators who are likely to be more receptive to TCO pitches than Joe Average in the dealer’s lot. That’s how electric buses are taking over, in site of the sticker premium.
Oh, yes, RANGE hiss hiss. The distance from London to Edinburgh is 402 miles: Brits see this as a major two-day expedition calling for a week’s planning with furrowed brows, as historian John Keegan puts it. A 250-mile Tesla 3 Standard meets all reasonable range needs in Britain. Distances in the US West are of course greater – but the population of Wyoming is 577,000, barely more than Sheffield (553,000). It’s absurd to let the needs of a handful of rural Real Western Men determine the framing of transport policy in a country where 80% of the population lives in cities, towns and suburbs and the average commute is 16 miles.
The EV revolution is happening, much faster than most people think. This chart leaves out e-buses, which have 90% of urban sales in China , and e-tuks, which putter below the statistical radar, but are >1.5m in India alone. For cars, the growth in sales in 2018 was a not exceptional 65%. It will be lower in 2019 because of a large hiccup in China, but the trend is unstoppable.
The immortal opening sentence of Don Quixote:
En un lugar de La Mancha, de cuyo nombre no quiero acordarme, no ha mucho tiempo que vivía un hidalgo, de los de lanza en astillero, adarga antigua, rocín flaco y galgo corredor.