One of the most significant barriers for fleet operators in transitioning to electric vehicles (EVs) is the price hurdle. However, understanding the Total Cost of Ownership (TCO) of EVs compared to internal combustion engine (ICE) vehicles can provide a clearer picture of long-term costs and potential savings.
With manufacturers facing potential penalties of £15,000 per non-compliant car under the Zero Emission Vehicle (ZEV) mandate, and electric vehicles now holding a 21.3% market share of new car registrations in 2025, understanding TCO has never been more critical for fleet decision-makers.
This article breaks down the TCO for EVs in fleet operations, comparing it with traditional combustion engine vehicles. Here we discuss how various factors like maintenance, fuel costs, tax incentives, and depreciation play a role in the lifetime cost of an EV so you can make an unbiased decision.
If you do decide to go with an EV, we also have a handy guide to the different types of electric vehicle hire and ownership so you can choose the best route for your business.
What is Total Cost of Ownership (TCO)?
Total Cost of Ownership (TCO) is a financial estimate that includes the direct and indirect costs associated with purchasing and operating a vehicle over its entire lifecycle.
For fleet managers and operators, TCO encompasses different factors depending on whether you have ICE and/or EVs in your fleet. Knowing the individual and overall TCO of your fleet composition helps you to accurately budget for the entire lifecycle of your vehicle/s, optimising the performance of your fleet and effectively managing and forecasting costs.
It’s important to note that while some TCO factors apply universally, the actual costs associated with each factor might differ significantly between ICE vehicles and EVs.
For example, maintenance and repair costs are generally lower for EVs thanks to regenerative braking. On the other hand, battery replacement costs are unique to EVs and can be substantial depending on the vehicle and timing of the replacement.
Universal total cost of ownership factors:
Initial purchase price – The upfront cost to buy the vehicle.
Deprecation – The decrease in the vehicle’s value over time.
Insurance – Insuring the vehicle against damage, theft or accidents.
Maintenance and repairs – Routine maintenance and unexpected repair.
Registration and taxes – Registering the vehicle and paying related taxes.
Financing costs – If finance is required, the interest and fees associated with financing the vehicle purchase.
Resale value – The amount you can expect to receive when selling the vehicle.
Driver behaviour and usage patterns: Affects fuel efficiency and vehicle lifespan, especially in urban areas.
Compliance and regulatory costs: Includes environmental standards like ULEZ charges for non-compliant vehicles.
Vehicle downtime: Impacts availability and operational costs due to maintenance or repairs.
Fleet management software costs: Tools for monitoring, tracking, and managing fleet operations, including telematics and route optimisation.
Total cost of ownership factors for ICE vehicles:
Fuel costs (gasoline or diesel) – Cost of gasoline or diesel to power the vehicle.
Emissions testing and fees – Cost of mandatory emissions tests and related costs.
Oil changes (more frequent than EVs) – Cost of regular oil changes to maintain the engine’s performance.
Fuel efficiency and fuel price fluctuations - The impact of global fuel price shifts on long-term costs.
Regulatory changes and future legislation - Emissions laws or restrictions that could increase ownership costs.
Advanced engine technology - The effect of new technology like turbochargers on maintenance.
Total cost of ownership factors for electric vehicles:
Electricity costs – Cost of charging the vehicle’s battery with electricity.
Charging infrastructure – Cost of installing and maintaining an office charging station or using public charging stations.
Battery replacement – Cost to replace the battery pack when it reaches the end of its lifespan.
Incentives and tax breaks – Financial benefits provided by the Government to encourage EV adoption.
Battery degradation over time: The cost of replacing or reduced range due to battery wear.
Charging network reliability: Availability and reliability of public charging stations, especially in less urban areas.
Battery leasing or warranty options: Battery leasing models or extended warranties to offset replacement costs.
End-of-life recycling and disposal: Growing costs and infrastructure for recycling EV batteries.
Energy costs & smart charging: Optimising energy usage with off-peak or renewable energy charging for cost savings.
Payload and weather impact on performance: The effect of payload (cargo and passengers) on EV range, especially in cold weather, which can reduce battery efficiency and overall performance.
Driving conditions and efficiency: Adverse weather (rain, snow, extreme temperatures) can significantly reduce EV efficiency, affecting both range and charging frequency, thus influencing overall TCO.
Understanding the Total Impact of EVs
When combining these extensive TCO factors, it becomes clear why many fleet operators are taking a measured approach to EV adoption.
While EVs offer potential savings in some areas (like lower fuel costs and reduced maintenance), they also introduce new cost considerations and operational uncertainties:
- Infrastructure Investment: Beyond vehicle costs, organisations must consider substantial investments in charging infrastructure and potential electrical system upgrades.
- Performance Variables: EV range and efficiency can vary significantly based on payload, weather conditions, and driving patterns. For instance, cold weather operations can reduce battery efficiency by up to 30%, directly impacting operational costs and planning.
- Operational Adaptation: Businesses must factor in the costs of adapting operations to account for charging times, route planning around charging infrastructure, and potential changes to delivery schedules.
- Technology Changes: With rapid changes in EV technology, there's understandable concern about investing heavily in current-generation vehicles that may become outdated as the technology matures.
This complex TCO landscape makes electric vehicle rental solutions particularly attractive. Through flexible rental options, organisations can:
- Test different EV models in their specific operational conditions
- Gather real-world data on performance and costs without long-term commitment
- Scale their EV fleet up or down based on actual business needs
- Avoid the risks of technological obsolescence
- Maintain operational flexibility while building confidence in EV technology
This approach allows businesses to make informed decisions about long-term EV adoption while managing their exposure to technological and market risks.
What tax incentives are available for EVs in the UK?
Benefit-in-Kind (BIK) Tax
EVs benefit from significantly lower BIK rates than traditional internal combustion engine (ICE) vehicles due to their low CO2 emissions. The BIK rate for EVs is currently very favourable, starting at 2% for the 2024/25 tax year, and increasing gradually to 5% by 2027/28. This makes EVs a very attractive option for both employees and employers, significantly reducing the tax burden compared to equivalent ICE models.
Below is a BIK rate comparison between the all-electric BMW iX3 M Sport, and the BMW X3 20 xDrive M Sport petrol for a 20% and 40% taxpayer:
The BMW iX3 has a P11D value of £65,160 and 0g/km CO2 emissions. Under the current 2024/2025 2% BIK rate, an employee would pay £260.64 per year/£21.72 per month (20% taxpayer) or £521.28 per year/£43.44 per month (40% taxpayer) in tax.
The BMW X3 has a P11D value of £51,295 and 159g/km CO2 emissions. Under the current 2024/2025 36% BIK rate, an employee would pay £3,693.24 per year/£307.77 per month (20% taxpayer) or £7,386.48 per year/£615.54 per month (40% taxpayer) in tax.
As you can see, the monthly BIK tax paid by the BMW X3 driver is more expensive than the entire annual cost of BIK tax paid by the all-electric BMW iX3 driver, which is a significant increase.
This is where long-term rental options for business EVs can be an attractive solution. By renting an EV, employees and employers can make significant savings and fleet managers can flex their fleet in-line with the changing needs of their business, with no long-term contracts or upfront fees. It’s a smart and flexible way to stay ahead of the curve without the financial uncertainty that comes with leasing or ownership, particularly as EV prices and BIK rates continue to change.
Capital Allowances
Businesses can claim 100% first-year allowances on the cost of new and unused EVs, allowing them to deduct the full cost of the vehicle from their pre-tax profits in the year of purchase.
This provides a significant incentive for businesses to invest in EVs for their fleets, enhancing cash flow and reducing taxable profits.
Vehicle Excise Duty (VED)
As of April 1, 2025, electric vehicles will no longer be exempt from Vehicle Excise Duty (VED). Owners of EVs will be required to pay the standard rate of £190 per year, removing a key incentive for private buyers to choose an EV, and potentially impacting the overall cost of ownership.
Fuel Benefits
If an employer provides fuel for private use, this is considered a taxable benefit. However, since EVs do not use conventional fuel, there are additional savings and tax benefits, which further incentivise the choice of electric over ICE vehicles.
What grants and financial support is available for EVs?
Infrastructure Grants
Small and medium-sized enterprises (SMEs) can apply for grants that cover up to 75% of the installation costs for electric vehicle charging infrastructure. This reduces the initial investment required to support an EV fleet, making the transition to electric more accessible for businesses.
Vehicle Purchase Grants
The UK government offers grants for purchasing low-emission vehicles, including specific discounts on electric vans, trucks, and taxis. For example, small electric vans can receive up to £2,500 off the purchase price, while large electric trucks can benefit from up to £25,000 off (gov.uk).
What is the cheapest way to get an EV?
Electric car hire
Fleetondemand's EV Plus service offers businesses a unique opportunity to trial electric vehicles without the risk of long-term commitment. With access to our extensive network of over 400,000 vehicles across 1,500+ locations UK-wide, organisations can test EVs in real-world conditions before making permanent fleet decisions.
Key benefits include:
- Flexible rental periods of 90+ days
- No upfront costs with monthly payments in arrears
- No termination penalty after the minimum 90 day hire period
- Hand the car back any time with only two weeks notice
- Comprehensive maintenance and breakdown coverage
- Free nationwide delivery
- A generous 25,000-mile annual allowance
- Ability to switch vehicles as and when needed
This flexibility makes EV rental ideal for testing different models, supporting temporary staff, or managing fleet size according to business demands while gathering valuable real-world data on performance and costs.
Leasing deals
Leasing an electric vehicle has become increasingly popular. With this option, you essentially rent the car for a set period (usually 2-4 years) and make monthly payments.
At the end of the lease term, you can either return the vehicle or purchase it for a predetermined price. Leasing does come with some restrictions. For example, lease contracts often include mileage limits and exceeding those can result in extra fees.
You may also be responsible for wear and tear when you return it. If your business needs a change at short notice, ending a lease early can be costly due to early termination fees.
Outright purchase
This involves paying the full price of the electric vehicle upfront. While this may require a significant initial investment, it allows you to own the vehicle outright without any ongoing payments or commitments.
Like most vehicles, EVs can depreciate quickly, meaning their value may decrease significantly over time. This can be a concern if you are planning to sell the vehicle in the future.
Along with depreciation, owning a vehicle outright also means responsibility for all maintenance, repairs, and associated costs which can add up over time.
Making Informed TCO Decisions
When calculating TCO for EVs, real-world operational data is crucial. Through Fleetondemand's EV Plus service, organisations can:
- Evaluate actual range performance under different operational conditions
- Assess charging infrastructure requirements based on genuine usage patterns
- Monitor driver adaptation and operational impacts
- Calculate accurate costs based on real-world conditions rather than theoretical estimates
This practical experience provides invaluable insights for long-term fleet electrification strategies while maintaining operational flexibility.
Want to learn more?
Ready to take the next step in your EV journey? Check out our full guide on the EV transition here for more in-depth insights and strategies.
And if you're interested to see how our reliable EV rental solutions can work for your fleet, book a demo with our team today. We'll show you first-hand how we can help you unlock the full potential of electrification and achieve your sustainability goals, without all the risk.
