EVs can make sense for dealer, motorist

The slower rate of depreciation of electric vehicles (EVs) compared to internal combustion engine (ICE) vehicles will have a positive impact on vehicle dealers.

EV Dealerfloor

Absa Vehicle and Asset Finance head of strategy and business analytics, Henry Botha, says the slower rate of depreciation of EVs will enable customers to trade in their vehicles sooner because they will reach positive equity sooner than with an ICE vehicle, which will translate into shorter trade cycles for dealers and improved profitability.

Botha said this during an address to the Smarter Mobility Africa conference in response to concerns that the reduced cost of ownership of EVs was a challenge for dealers because EVs will have to visit service stations less frequently and have fewer items to replace and service.

He says a future challenge for dealers is the fact that training will be required by dealers to enable their technicians to do fault finding of new issues that are unique to EVs.

Botha says EVs are still more expensive than their equivalent ICE vehicles, adding that the biggest contributor to the monthly cost of a vehicle is the depreciation of the asset.

He says between 35% and 42% of the depreciation stems from the tax that is levied on a vehicle, with the remaining 58 - 65%of the cost of a vehicle attributable to the manufacturing, distributing and selling it through a dealership.

The remaining monthly cost items of a vehicle are fuel and parking, the maintenance cost of the vehicle, insurance and repairs, finance costs at 5% and sundry cost items such as e-tolls, other small taxes, fines and the renewal of a vehicle licence disc.

Botha added that EVs hold an advantage over ICE vehicles in that EVs have lower maintenance and fuel costs.

He says electricity costs have increased by 17% in South Africa over the past year, while petrol and diesel have increased by 20% to 30% in the same period.

However, says Botha, the big difference between an EV and gas-powered vehicle is that the electricity for an EV can be self-generated through solar panels at home and offices, which is not possible with an ICE vehicle.

Breaking down the running costs of EVs and ICE vehicles further, Botha says EVs require about 4 000 kWh to 5000 kWh of charge to travel 25 000 km a year, which at R2.70 to R3 per kW in South Africa, will result in it costing between R11 000 to R15 000 to travel 25 000km a year.

By comparison, if a motorist uses a fossil fuel engine, he/she will require about 1 700 litres of fuel which, at the current rate of R18 a litre for fuel, means it will cost R31 000 a year to travel that same distance, he says.

“That is more than double what it will cost you to travel that distance in an EV,” he says.

Botha says the maintenance cost of an EV should also be lower than an ICE vehicle because EVs have a less complex engine with fewer items to replace and service at each service interval.

“Since maintenance costs and the cost to travel are lower for an EV, it should then give you lower depreciation because the used-car market is looking for vehicles that are less costly to maintain. With that, we can assume that the depreciation on an EV will be lower than on a petrol vehicle.

“Those two elements make us excited because an EV will have a lower long-term cost of ownership than an ICE vehicle as long as we can sort out how it gets charged and the charging can be done at a lower cost per km than using fossil fuels, as is the case today,” he says.

Botha says the cost of EVs has not been the obstacle to higher EV adoption rates in South Africa but rather how much more expensive EVs are than ICE vehicles.

There are only a few EVs that cost less than R1 million, with the majority priced at between R1 million and R2 million, while the average purchase price of a new vehicle in South Africa is between R300 000 and R400 000, he says.

Botha believes it could take the next 10 years before there is mass adoption of EVs in South Africa.

EV and PHEV sales peaked in South Africa in 2016 at 268-unit sales but only 126 electric (EV) and plug-in hybrid (PHEV) vehicles have been sold to date this year, he says.

Read more: EV survey shows demand for Electric Vehicles

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