Factors affecting cost competitiveness of electric vehicles against alternative powertrains: A total cost of ownership-based assessment in the Italian market

Abstract

Electric vehicles have faced a significant diffusion in the last years, however they still represent a minority share over passenger cars registrations worldwide. Economic factors play a crucial role in preventing a higher diffusion of electric vehicles, with particular reference to the higher purchase price compared to internal combustion engine vehicles . Indeed, potential electric vehicles buyers typically tend to underestimate long-term savings that can be achieved due to the lower operating costs characterizing electric vehicles compared to internal combustion engine vehicles (so-called “energy-efficiency paradox”). An emerging literature stream suggests that the availability of comprehensive economic comparisons between electric vehicles and internal combustion engine vehicles, based on the total cost of ownership, would increase the potential customers’ willingness to buy an electric vehicle. However, there is an ongoing debate on the cost competitiveness of electric vehicles considering the whole ownership period, and in particular on the most influencing factors affecting it. The paper aims to fill this literature gap by assessing the cost competitiveness of electric vehicles against a broad set of alternative powertrains , with reference to the Italian market. To this aim, an ad hoc assessment tool based on the total cost of ownership has been developed, leveraging the extant knowledge on the topic and addressing current gaps. Results show that battery electric vehicles are characterized by the lowest total cost of ownership among analysed powertrains in two out of four vehicle segments evaluated, i.e., segments A (mini cars) and C (medium cars). This is mainly due to the presence of purchasing incentives and the lower fuel-related and non fuel-related operating costs characterizing battery electric vehicles compared to other powertrains, which more than offset the higher purchase price. In other cases, the relatively high purchase price characterizing battery electric vehicles (as well as plug-in hybrid electric vehicles) negatively affects their cost competitiveness. The study provides suggestions for managers of companies within the e-mobility value chain and policymakers on the levers to promote the spread of electric vehicles to achieve the decarbonisation targets for the transportation sector.