The bigger the mileage, the more things lean towards the EV. The novated lease option, however, tilts things dramatically and unambiguously in favour of the EV.
Is it the right time to buy an electric car? That’s the car question this writer is now asked more than any other.
Unsurprisingly, perhaps, there is no universal yes or no. Energy prices are in flux, technology is moving swiftly, interest rates are rising and a recession may be on the way. So could it be at all wise to pay a healthy premium for an EV?
Let’s ignore the environmental advantage and driving experience (which, with some limitations, is usually superior) and look at it in purely economic terms. To find out the truth – or at least a truth in a complicated area – let’s consider a case study, namely the Volvo XC40 Recharge Twin Pure Electric.
The Volvo XC40 Recharge Pure Electric punches above its weight when it comes to performance.
The Volvo has been chosen because (a) it’s an impressive machine at the more affordable end of the EV price scale, (b) there is a similarly specified petrol version which enables direct comparisons, and (c) it’s an SUV, which is what buyers are asking for.
The XC40 will seat four adults comfortably, and five in a pinch. When fully charged, its battery holds a nominal 78 kWh (a kilowatt hour is the standard unit of energy for car batteries), but more realistically 74 kWh. Its motors produce combined power and torque outputs of 300 kW and 660 Nm, which makes it a very spritely SUV indeed.
On the standardised WLTP measure, the Volvo will travel 425 kilometres between charges. That’s in ideal conditions; expect more like 350 to 370 kilometres, still enough for a week of city commuting or the drive from, say, Sydney to Canberra without too much range anxiety.
So here’s a look at the economics of buying such a vehicle, calculated over four years.
Although at the lower end of the EV price scale, at least among those from prestige brands, the Volvo XC40 Recharge Twin Pure Electric still costs $79,490 plus on road costs.
Because EVs accelerate quickly, manufacturers compare them with their highest performance models and argue there is very little price premium. But realistically, most buyers of a Volvo EV aren’t cross-shopping with the sportiest petrol models.
The most obvious alternative would be the XC40 Ultimate B5 Dark. This petrol-powered XC40 has almost identical equipment levels and is also all-wheel drive. It has far less power and torque than the electric car, but is substantially lighter. Its price is $63,990 plus on road costs.
Winner: Petrol, easily. Unless you specifically want the faster acceleration, you are paying a neat $15,500 extra to go electric. However, some of that could be softened by EV incentives, which vary hugely by state and territory. Canberra offers interest-free loans, a stamp duty waiver (worth $3900 in one hit for the Volvo EV) and free rego.
If you drive a typical distance – say 15,000 kilometres per year, mainly around town – in a petrol XC40, you’ll consume about 10 L/100 km on average. And, as with many European cars, you’ll need to fill it with expensive 98 octane premium unleaded.
That’s going to cost you about $60 a week, or $3120 over a year, or $12,480 over four years. Those driving longer distances or in larger vehicles could be spending vastly more on petrol, of course.
By contrast, charging the Volvo EV could cost as little as, well, zero. That’s not hard to manage if you have solar on your roof, and the car is at home during daylight at least a couple of days a week (or you have a battery). Several new EVs come with free public charging for a certain number of years, though not the Volvo. Still, some public charging stations are free to all.
If you use domestic electricity, it could cost you 29¢ per kWh in NSW. Enough energy to cover the weekly 228 kilometres would be as little as $17.17, before even considering off-peak rates. If you are going to the trouble of buying an EV, you’ll likely be using certified green energy, which could raise that figure to $25.90.
Winner: It’s electricity first, daylight second. Over four years at today’s electricity and petrol prices, the EV could save you between $12,480 (all solar or free public charging) and $8172 (green charging at full rate). The occasional bout of ultra-rapid public charging could cost you $45 for a zero to 100 per cent fill, and will cut into those gains, of course. Such figures need to be further adjusted if you live in Victoria, with its strangely hostile 2.5¢-per-kilometre tax on EVs.
The Volvo, like several EVs, includes three years of free servicing. According to its maker, it will cost $225 to service in its fourth year. The scheduled servicing for the petrol is $2150 over those same four years. Conveniently, too, the EV has 30,000 km/two-year service intervals, meaning fewer trips to the dealer. The Volvo’s eight-year/160,000 kilometres warranty on the batteries is pretty typical, and overseas research suggests the life expectancy of EVs should easily surpass the 10.6-year average age of Australian cars.
My online quotes for comprehensive insurance (private ownership, financed) averaged $1057 per annum for petrol, versus $1215 for EV, premiums pretty consistent with the price difference.
Winner: EV, comfortably. On regular maintenance the EV is $1925 ahead over four years. There’s the bonus that the brake pads and rotors – always a very expensive replacement job on any car – will last far longer because much of the slowing down is done by the electric motors (so-called regenerative braking). On insurance, the petrol wins by $632 over four years.
Leasing via a company
Much has already been written about the dramatic difference the fringe benefits tax (FBT) exemption for EVs (under the Electric Car Discount Bill) can make. The most effective way to realise this advantage is through a novated lease, says Andrew Kerr from leasing specialist InsideEDGE. “This is when the employee enters into the lease and then it’s novated, or transferred, to the employer – that way the employee can choose the car they want and the options they want, and if the employee leaves the company they take the car and the lease with them.”
The Volvo qualifies for the FBT exemption because it is under the EV threshold of $84,916 (including GST before on road costs). To keep consistent with other calculations, we’ve worked on a four-year lease, though Kerr points out the FBT exemption comes under review on June 30, 2025. If it stays in place, InsideEDGE’s calculations show leasing the Volvo EV would save an employee a massive $22,458 over four years, despite its purchase price being significantly higher than the petrol car.
InsideEDGE also bundled up a consumer loan package for our comparison (at 7.99 per cent with a 37.5 per cent balloon), including all estimated running costs for the two cars over four years. It found the total costs for the EV were $1248 less than the petrol. It was still a much dearer option than the novated lease, however.
Winner: EV, by a landslide.
It’s easy to imagine that – with some exceptions – EVs will hold their value better than internal combustion engine cars. As they become the norm, that’s what most second-hand buyers will be looking for. However, according to Ross Booth, global general manager of comparison site RedBook, that’s not necessarily the case. For something very technical and improving quickly, “buyers often want the latest and greatest, not an older model”. There are exceptions – he says Teslas has some of the best-retained values on the market, and respected brands like Volvo stand up pretty well. RedBook research (it’s a business-to-business data service that calculates current and future values for every car on the market) suggests that after four years and 80,000 kilometres, the Volvo EV will be worth $47,000 and the petrol $38,000. Both those figures show a retained value of 59 per cent.
Winner: Petrol. Even though RedBook says the EV will hold its value as strongly as the petrol, you will have burned $32,795 in depreciation on the former and $26,236 on the latter, representing a $6559 win for petrol. However, future estimates are future estimates. If drastic climate action is taken by more heavily taxing petrol or banning petrol cars from CBDs, this could further degrade the resale of combustion vehicles. A step change in battery technology could hurt the EV.
So what do we reckon?
Based on the longer-term numbers, with all their variables and different state energy prices and imposts, and different finance methods and associated costs, an EV in this price class is broadly competitive. A private buyer could run the EV for a fairly similar total cost to the petrol car over four years, providing he or she were entitled to some of the government subsidies and incentives. That’s on 15,000 kilometres a year, but the bigger the mileage, the more things lean towards the EV.
The novated lease option, however, tilts things dramatically and unambiguously in favour of the EV.
The main EV problem right now – including with the Volvo – is getting one. If you succeed, no matter how the numbers fall you’ll appreciate the zero local emissions, the effortless acceleration for overtaking, the quiet cabin, the simple controls (no gearbox!) and the longer service intervals. Then there’s the fact you’ll never have to visit a smelly service station ever again (unless you need outrageously overpriced snacks at 2am). That alone is worth something.
Author: Tony Davis Motoring writer Australina Financial Review