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The best ways to buy an electric car

The best ways to buy an electric car

Whenever unsuspecting motorists get behind the wheel of an electric Polestar for a test drive, the result is always the same.

“They press the accelerator and start laughing,” says Jonathan Goodman, boss of the UK arm of the Swedish-Chinese motor company. “Once they drive it they want in.”

Regular test drive events — which are fully booked weeks in advance — have helped the brand alchemise curiosity into sales. Deliveries tripled last year, and the group now has a long waiting list for its slick executive sports saloons, which start from £39,000.

It is not alone.

When they come to choose their next vehicle, more car buyers are now asking seriously whether an electric car is for them.

Although the market is hindered by semiconductor shortages that have seen consumers waiting months for deliveries of both electric and traditional cars, battery cars are still making inroads.

In December, a full quarter of the new models sold in the UK were electric, boosted by a late delivery shipment from Tesla.

And with the UK set to phase out sales of new petrol and diesel cars by 2030, and hybrids by 2035, almost everyone sooner or later will have to embrace them.

“I think when consumers get their hands on these products and they start to drive them and understand them, they are going to fly, and I think it’s going to gather momentum much more quickly than people think,” says Mark Raban, boss of dealer group Lookers, which has significant electric sales through its VW outlets.

The key words in Raban’s assessment are “understand them”. As with all new technologies, electric vehicles are beset by myths: from outright untruths such as being unable to charge in the rain and being more likely to catch fire, to real-life horror stories of motorists stranded at remote and broken charging stations.

But there are also real challenges. “The biggest barriers are cost and concerns about infrastructure,” says Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders, the UK industry’s trade body. “These are the biggest barriers to people considering this type of purchase.”

For anyone considering buying one, there are key questions to ask.

Are they more expensive?

As EVs sit on the cusp of the mainstream market, environmental concerns have given way to financial questions. Chiefly, do the sums add up?

For years, the selling point of electric vehicles was that the higher purchase costs were offset by lower recharging costs and servicing needs.

However, attractive financial deals now mean that some are cheaper upfront, even before the subsequent savings.

In particular, for anyone able to buy a vehicle through a business or a company car scheme — or through their own business — the maths is undeniable.

First, any business buying a fully electric car can write off the entire value against profits for corporate tax purposes in the first year of ownership.

And while company car schemes have in general become less attractive, the remaining benefits are heavily skewed to favour battery models.

The largest is Benefit in Kind (BIK) tax levied on the driver as personal income tax.

This is calculated as a percentage of the car’s value, then divided by the personal tax rate and split across 12 months.

Any company car used only for business — an increasing rarity — faces no BIK tax. But for company cars that can be used for personal travel as well, the BIK rate becomes a major factor.

For petrol cars, the BIK tax rate is at least 20 per cent, and can be far higher. For electric models, it is just 1 per cent of the car’s value per year.

Octopus EV, an electric-specialist lease group, calculated the costs of leasing the popular Tesla Model 3, a £43,000 car, against those of a BMW 3-series, a £35,000 mainstay executive sedan, for a 40 per cent taxpayer.

The business lease on a Tesla Model 3 is £425 per month, far more expensive than the BMW at £285. But while the BMW attracts a BIK charge of £382 per month, because of a tax rate of 33 per cent, the Tesla’s payments are just £14, with a 1 per cent rate.

The assumed fuelling costs for the BMW are £100 a month, compared with £12 for charging the Tesla, giving an all-in price of £451 a month for the electric, against £767 for the petrol engine car.

“Even before you look at running costs, it was already cheaper [for the user] to go electric,” says Fiona Howarth, chief executive of Octopus EV.

Salary sacrifice, which allows anyone taking a company car to deduct leasing and insurance and other costs out of basic pay before income tax, is also tilted to encourage low-emission cars.

Anyone buying a low-emission car, classed as producing 75g of CO2 per km — the equivalent of a Toyota Prius — does not have to pay tax on the sacrificed sum. But someone buying a more polluting vehicle must pay either the BIK tax on their vehicle, or tax on the amount of salary they sacrificed — whichever is higher.

Octopus EV found that a VW ID3 — the brand’s entry-level electric hatchback — was £25 cheaper than a petrol-driven Golf when bought on salary sacrifice for a basic rate taxpayer, and £50 a month for a 40 per cent payer.

While good at oiling the wheels of the business market, both of these perks have inflated the market for business cars — whether employees taking company cars, or business owners using their company to buy a vehicle. Of the 190,000 electric cars sold in the UK last year, two-thirds were bought by or through businesses.

For consumers without corporate schemes wanting to make the switch, the offer is far less rosy.

There are no tax breaks. Meanwhile, the plug-in car grant, an upfront payment to private consumers buying new electric vehicles, has been whittled down from £5,000 to just £1,500, while a price cap of £32,000 excludes all but a handful of battery vehicles.

At the same time, the grant offering to pay up to 75 per cent of the cost of installing a home charger, up to the value of £350, ends in April for anyone not living in a flat or rented accommodation.

Ministers argue that this is to allow the money in the plug-in car grant scheme, which is due to end in March 2023, to go further, allowing more people to get into entry-level EVs.

But the SMMT says it sends a mixed message. Hawes says: “If 12 per cent of the market is battery electric, and two-thirds of those are business buyers, then it’s still a relatively small proportion of the private sector that are buying these vehicles. We are still very much in the early adopter phase of private vehicles.”

With less help buying the cars, consumers wanting to make the sums tally must claw back savings from running costs, which hinge mainly on being able to charge the vehicles at home overnight.

The best ways to buy an electric car

Where can I charge?

Anyone with a driveway or dedicated parking can cut driving costs to the maximum, assuming they are able to install (or get their landlord to install) a home-charging kit.

Those who do not must rely heavily on local councils, which determine which streets have pavement charging. A year ago, there were 11 electric cars for every on-street charger, according to SMMT calculations. Today, there are 16.

The SMMT this month raised this as a key concern. “We don’t want this to become a social issue,” says Hawes. “There is a danger that those who don’t have a driveway are compelled to pay more.”

Even where public chargers exist, they are more expensive. Anyone charging at home pays 5 per cent VAT on their domestic electricity. But public charging comes with 20 per cent VAT.

A new government charging infrastructure policy is due out in the coming weeks. The industry says it will be toothless unless it contains firm targets, and sanctions on councils that do not meet their quotas.

For those with driveways, the lower costs make electric cars far more attractive. “For a great many drivers, you can charge overnight for 1p a mile,” says Ginny Buckley, founder of Electrifying.com, a website set up to address concerns over electric vehicle ownership.

Electrifying.com data indicates a petrol-driven Mokka — a small family SUV — costs about £109 a month to refuel, assuming £1.45 a litre and 51.4 miles to the gallon. The electric model costs £33 a month if paying 15p per kWh charging and driving 3.57 miles per kWh — or even less if charging cheaply overnight.

The site put together an EV buyers’ guide in collaboration with the Department for Transport, to answer the basic questions about EV buying.

Will it hold its value?

In the days when people bought cars with bank loans, the question of residual values was a niche concern.

Now, it is key. Almost all new cars — and an increasing number of used models — are bought using finance products based on the value they lose.

The most popular for consumers is the personal contract purchase, or PCP. Under this model, the finance lender calculates the value the car loses during the contract — normally three years — charges interest, and divides it into monthly payments.

Finance companies like it because they have a steady income stream, carmakers like it because people are encouraged to change vehicles every three years, and motorists like it because they can afford better cars.

The buyers’ trope that cars lose a third of their value when you drive them off the dealer’s forecourt still holds — but exactly how much they lose over the following three years remains a science.

For conventional cars, the process is comparatively easy: The age, mileage and servicing history go some way to estimate the wear on the moving parts and so the depreciation.

But electric vehicles are a different animal.

While petrol cars have about 3,000 moving parts, battery models have a dozen or so.

There is no gearbox to snare up, no oil to run dry. Central to the depreciation calculation is what happens to the battery. Over time, any battery, whether for a phone or a car, will lose its ability to charge to the max.

If valuing engine vehicles is a science, doing the same for EVs is currently more of an art, given the lack of long term data.

When they do need repairing, batteries can be expensive. A battery module in a Nissan Leaf costs around £390 to replace. The early electric cars tended to shed value, so valuers were initially uncertain how to treat later models.

But the consensus around battery performance improved so fast that smart buyers could purchase a second hand Nissan Leaf, wait several months, and sell the same vehicle for more money. The makers’ guarantees helped — Nissan offers a warranty for eight years, or 100,000 miles.

This volatility still hurts valuations today. Adrian Dally, director of motor finance at the Finance and Leasing Association, says it’s the main reason that electric car financing remains, on balance, more expensive than it should be. “It isn’t the amount of residual value that increases the risk, it’s the volatility of the residual value.”

Another factor that hurts valuations is the rapid advance of technology. Every new model has better range than its immediate predecessor.

Prices for Renault’s first 70-mile Zoe car fell like a stone after the company released an updated 130-mile version, and once-cutting edge models now look antiquated compared in a market awash with 250-mile vehicle.

But Lauren Pamma of the Green Finance Institute, which works on the financial barriers to decarbonising road transport, says: “I think we’re starting to see that uncertainty reduce as more data becomes available.”

Will the battery last?

While most new petrol cars depreciate at about the same rate, electric cars vary wildly depending on driver behaviour and its impact on battery life.

“Battery degradation is just as important as mileage in the future,” says Chris Plumb at CAP HPI, a specialist second-hand valuation group. “A car that has done 100k miles but has 95 per cent of its battery health is a good car.”

Just as most people service their existing cars and do not drive in the wrong gear, so electric motorists will need to learn to charge their cars properly, using slow chargers most of the time and not constantly filling the batteries to the top.

Anyone relying solely on superfast chargers risks harming their vehicles — as some motorists have occasionally discovered.

Akbar Ahmed, a tax professional from Stockport, was an early electric adopter, driving one of the first Nissan Leaf models.

But after switching to a newer model, he began driving further to see family regularly and, because he could not charge at home, relied on fast chargers on the road — sometimes up to four times a day.

When, after the car failed to start on the morning of a holiday going to the Lake District, he called out the RAC, to discover a serious problem with the battery.

Emails from Nissan to Ahmed say he damaged the vehicle by charging it so often.

Ahmed told the FT that phrases such as “quick charging” in the manual were unclear. He said having to wait for the battery to cool before using a fast charger — the official Nissan advice — defeated the point of having the car. “The dealership don’t tell you this,” he says.

Ahmed eventually resolved the issue after calling Nissan’s UK headquarters. But he is now that rare person — an electric driver who has gone back to petrol.

Nissan said: “Comprehensive guidance on battery care is made very clear in the vehicle manual, which advises owners — for example — to avoid sustained high battery temperatures caused by extending highway driving with multiple quick charges. In cases where this hasn’t been followed, we have worked with customers to find a resolution.”

But despite garnering attention, horror stories such as Ahmed’s are very rare.

In five years of talking to electric car motorists, he is the only one I have come across to revert to fossil fuels. All the others, no matter how irked by teething pains, say they will never give up their EV.

Angus Hanton, who used his self-storage business Dulwich Storage to buy one of the first Nissan Leafs seven years ago, says the experience was transformational — despite once having to stay in a hotel in Oxford because of a broken charger. “It’s fantastic. It’s so nice getting into the car without any feeling of guilt, and of course it’s so cheap on a per mile basis.”

When the time comes to replace the car, there’s no question he will stump up for another electric: He says: “It’s a one-way journey.”

Video: Cars, companies, countries: the race to go electric

Letter in response to this article:

A word of warning before buying that electric car / From Simon Aspinall, Sevenoaks, Kent, UK