As expected, the long-awaited company car tax changes were rubber-stamped at last week’s budget. The anticipated Benefit in Kind rates for electric vehicles (EV’s) will finally be passed into law, meaning pure EV’s registered from April 6 2020 will enjoy a zero percentage rate, with small increases of one percentage point for each of the tax years 2021 to 2022 and 2022 to 2023.
This welcome clarity around the taxation rules means that fleets are now able to plan appropriately and begin to consider the introduction of EV’s. To further incentivise the switch to electric, considering the 2040 phase-out date, the chancellor has also promised an extension to at least 2022-23 of the plug-in grant, albeit reduced by £500 from £3500 to £3000 and not applicable to cars worth over £50,000. And as the ticket price of EV’s remains relatively high there is a small incentive in the form of no Vehicle Excise Duty for EV’s worth over £40,000.
So now that the industry can plan accordingly for the introduction of electric vehicles, what are the prime considerations a fleet operator must face when deciding on electrification:
It is important to consider how the fleet strategy complements the corporate objectives of the business. If the business has a robust CSR program, and a commitment to managing carbon footprint, then clearly the appetite for ultra-low emissions vehicles will be strong. It should consider how it can help get as many employees, not just company car drivers, into EV’s; this could mean introducing electric company car salary sacrifice schemes to effectively take fossil fuel cars off the road. In countries with favourable tax incentives, such as the UK this would be extremely tax-efficient for all parties.
Currently, the UK government offers grants of up to £3,000 for pure electric vehicles such as BMW i3, Nissan Leaf and Tesla 3. This has been cut from the initial figure of £4,500, whilst plug-in hybrids are no longer eligible for grants, having previously attracted a £2,500 contribution toward the purchase price. These are powerful incentives and produce attractive options for fleet drivers, but these reductions do suggest a trend away from direct government product support and more towards incentivising via the taxation system and infrastructure investment; another example of this withdrawal being the reduction of the chargepoint grant form £500 to £350.
It appears that tactical taxation will change regularly, so it is a matter of ”making hay whilst the sun shines” and being prepared to be agile in policy and practice – a significant challenge for modern corporates.
In early adoption markets such as with electric vehicles, technology changes at a pace. It will be prudent to consider the impact of rapidly advancing technologies and the pace with which early models become obsolete. If advances are swift, then the impact of the residual value on the TCO needs to be considered. Notwithstanding this, the risk here should lie with lessors if you choose to lease cars, so exposure to additional costs for most businesses can be avoided through careful selection of products and services.
Like it or not, people can be lazy and will often take the route of least possible resistance. Unfortunately, this means the frequent charge of an electric/hybrid vehicle will often be considered a resistance and be side-stepped. Although this is not very productive for a pure electric vehicle, a hybrid can run on fossil fuel alone so side-stepping the charge does not cause the driver any real issues. Indeed, experience tells of charging cables remaining in their plastic wrap for the life-cycle of the car.
However, there are complications to this, depending on the fuel strategy of the business. If a driver is less than enthusiastic about recharging the battery of a hybrid vehicle then it will operate the petrol engine on all journeys. As is known, this is not as effective as a conventional diesel engine.
As part of an electrification strategy, companies should be thinking about their fuel strategy so drivers are encouraged to charge vehicles regularly and the company is not exposed to increased fuel costs. Introducing electric vehicles into the fleet also carries some infrastructure costs such as the installation of work-place, and possibly home, charging points, so to generate an ROI on an electric strategy then driver charging discipline is a must
Health and Safety
Introducing an electric option to the car fleet list will require some planning around charging provision, especially at home. Not all homes are suited to safe and practical charging. If a car has on-street parking, then this poses a risk and safe cabling must be considered. The company must also consider the suitability of the charging solution being used to ensure it does not damage their asset, which will require appropriate training and guidance on the safe use of such systems.
One of the challenges to all users of electric vehicles is anxiety about range. The vast majority of EV’s still have ranges of less than 150 miles. However, the range of the newest EV’s has improved dramatically over the last 2 years, from the 10th longest 193-mile BMW i3 up to the whopping 375-mile Tesla Model S Long Range.
Unsurprisingly, the longer-range vehicles carry a hefty price tag and are inaccessible to the vast majority of company car drivers. So, a more realistic range still sits around the 150-mile mark, which although is commute-sufficient, does not inspire confidence that a round trip to a client meeting or a day in the field would be completed before the need to sit out for 30 mins or so whilst the battery recharged.
One positive consideration is the halo effect that electric vehicles emits to the business brand. If the business is known for its green credentials and has strong market messages based on this position, then the inclusion to a fleet of electric vehicles has obvious positive connotations.
Fleetworx works closely with businesses to understand the dynamics of their fleet and how the move toward electrification will impact their supply chain, commercial contracts and category cost. We can analyse current fleet mix and establish the most cost-effective supply solutions to include EV’s into a car list, helping businesses successfully integrate an EV option into an established fleet structure.
For help with electrifying your company car fleet please contact Graham Rees for a confidential discussion