Plug-in electric cars (EVs) are the latest “IN” thing, and everyone wants one. EVs are popular, especially among the woke and tech-savvy next-gen professionals. As responsible global citizens, we are all in for going electric in all personal and public transport. The benefits of EVs like low-carbon emissions (they are not zero-actually), little noise, and their technological superiority are well-documented.
But as financial advisors, we are also pragmatic and realists. Even if one is totally convinced of their features and benefits, not everyone is going to demand an EV on their next showroom visit. The financial costs to own an EV car are not well-known. Therefore, let us discuss if it makes sense to own an EV from a purely financial perspective.
Total Cost of Ownership Electric Car In India
The purchase cost of a car is not its true cost. A car with better mileage and less maintenance may be economical in the long run compared to a cheaper car. Therefore, you must find the total cost of ownership (TCO) of the car. It includes:
- Upfront costs – purchase price, registration, and road taxes.
- Running costs – fuel cost and insurance.
- Maintenance costs – service, spares, and repairs.
- Import duty (if applicable).
- Subsidies by central governments
- State government incentives
The table shows the ex-showroom prices (as of November 25, 2021) for all the EV models available for sale in India. The most popular models have an average price of ₹20 lakhs. The comparable average price for comparable ICE (internal combustion engine) cars is in the range of ₹8 lakhs
For most of the middle-class an EV is out of range or requires a big commitment. The economic distress caused in the wake of the pandemic has made owning a car costlier than before, even after factoring in historically low-interest rates.
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Running Cost You Should Know Before Buy an Electric Car In India
Considering the recent gradual bur regular price hikes for petrol and diesel, the running cost for an ICE car giving 20kmpl mileage is between ₹4.75/km and ₹5.5/km (for petrol and diesel respectively). For a more powerful sedan or SUV, it can be up to ₹7.5/km to ₹9.75/km.
The cost of running an EV is dependent on the power tariff in your city. For example, in Delhi, the average power tariff for domestic consumers is ₹7/kWh for a household consuming above 600 units/month. The same prices for Mumbai are near ₹11/kWh, and for Jaipur, they are around ₹8/kWh.
The largest-selling EV in India, Tata Nexon EV takes 8 hours and 30 units to charge from 0-100% and gives a range of 312 km. If we assume a realistic range at 70% or 218 km, then even at ₹11/kWh it will cost only ₹1.5/km. This is a savings of at least 65 to 80 percent on the fuel costs at present prices. If the differential increase with time, the savings could be much higher.
The cost of charging can go up significantly if you use commercial charging stations or battery swaps. After a time as the battery loses efficiency, the savings also reduce.
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The insurance for an EV is costlier because:
- Higher purchase price.
- Costlier and difficult to procure genuine spares.
- Longer towing distance to a limited number of authorized service centers.
Compared to an ICE car, an EV has very few moving parts and therefore has a negligible maintenance cost. There is no need for air and oil filters change, engine oil change, spark plug replacement, carburetor, fuel tank & pipes, and many such parts. Some independent estimates put the annual maintenance cost for an EV between ₹10,000 to ₹15,000 compared to ₹25,000 to ₹40,000 for a comparable ICE car.
The batter is the biggest factor of concern as its range, efficiency, charging time, and life all reduces exponentially within a few years of running. If your battery is not working, then you may be left stranded at off-road and remote locations.
The repair and replacement of ICE car components take only 2 to 3 days while for EVs it may take weeks. The cost of rental cars or taxis during such periods is not accounted for.
The Indian government offers tax breaks, incentives, and subsidies on India-made EVs but adopts a protectionist view on imported EVs. The average import duty for EVs in India is upward of 100% compared to the global average of 22%. This puts the best affordable EVs out of reach of the middle class.
The central government incentivizes the use of EVs by offering the following major benefits:
- Waiver of Registration Certificate charges for all EVs.
- The GST on the EVs is charged at 5%, which is less than the 18-28% GST plus up to 22% cess on ICE cars.
- First-time individual EV buyers are allowed up to ₹1.5 lakh deduction u/s 80EEB of the IT Act, 1961 against the interest paid on EV car loan.
- The FAME-II scheme gives a one-time subsidy of ₹15,000 per kWh and is open till March 31, 2024.
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In addition to the central schemes, many state governments also offer incentives and subsidies to promote the purchase and use of EV cars. The table below lists such schemes state-wise as of November 2021 (some states that offer benefits on other types of EVs are not listed here).
Most states have put a cap of up to 10,000 units on EV cars to be eligible for subsidies or additional benefits, making it short-term hype rather than a significant driver for demand. Another limit is on the ex-showroom price cap at ₹15 lakhs, making only the EVs from Tata Motors to be eligible under the scheme.
Considering all the factors, the current total cost of ownership for EVs is almost the same as that for an ICE car over 1.50 lakh km. One can cover the difference in the upfront costs in 12 months (approximately) with a daily run of 150+ kilometers. This is normal for corporate fleet operators and cab operators, but not for most individuals with up to 50 km/day commute. Since EVs are bought as a second car in the household, the cost of owning and parking an additional car are also important factors.
With the current price structure and lack of reliable infrastructure for EVs in most cities, we do not find EVs a financially viable option. If more state governments extend subsidies and other benefits, for more units then the EVs may become a financially viable option.