Low inflation figures further improve the cost-benefit of EV ownership, says Ali Khan, Head of EVC UK Sales & Business Development at Vestel Mobility

  Posted by: electime      11th November 2024

The recent decline in the UK’s inflation rate, which fell to 1.7 per cent in September, could further improve the compelling cost dynamics of running electric vehicles, personally or as a fleet.

With some irony, the most significant contributors to the recent fall were lowering transport costs, especially for motor fuels. The Lower fuel prices helped reduce overall transportation costs, leading to a noticeable impact on inflation. While petrol and diesel prices might stabilise or even continue to decrease in the UK, furthering the lower inflation figures, the fundamental cost advantage of electric vehicles over ICE models, particularly when home or office charging on EV-specific low-cost tariffs, is likely to remain strong.

Lower inflation will help stabilise energy costs, make financing more accessible, and give the government flexibility to maintain or enhance EV incentives. With per-mile EV running costs already as low as 5 per cent -10 per cent of the equivalent petrol or diesel vehicle running costs, the good news on inflation continues to be good news for those opting for a battery-powered car.

The main impact is likely to be on direct costs, like EV car financing and energy pricing. Lower inflation is typically associated with stable or reduced interest rates, which could translate into more favourable financing options for electric vehicle buyers. Whether purchasing outright or opting for a lease, lower interest rates would decrease the overall cost of ownership. This could be particularly beneficial for EV buyers, as many currently rely on financing schemes to manage the higher upfront costs of electric vehicles compared to their petrol or diesel counterparts.

The reduction in the global fuel prices directly correlates with energy costs. Lower fuel prices mean lower electricity rates and, hence, cheaper charging. The global energy market has a dramatic impact on the UK energy prices due to regulated energy trading, despite close to 50 per cent of our energy being domestically produced from renewable sources. Additionally, if broader economic conditions improve due to lower inflation, it could encourage further investment in renewable energy sources such as wind and solar, which have been instrumental in lowering electricity costs in recent years.

As the UK transitions to cleaner energy and expands its renewable capacity, the potential for reduced electricity prices at home becomes more realistic, resulting in even lower EV running costs than conventional cars. This would improve the cost-effectiveness of EVs over their lifetime, particularly for high-mileage drivers who benefit the most from lower per-mile fuel costs.

The best EV-centric tariffs for home users already offer charging at less than 10p/KWh overnight, meaning a full charge costs £5-£10 for 200-350 miles depending on the vehicle’s capacity. With innovative brands like Octopus and Kerbo Charge bringing low-cost charging to more homes (even those without their own driveway), EVs are becoming compelling for an ever wider demographic.

Indirectly, the lower fuel prices contributing to the UK’s low inflation will trickle through to manufacturing, reducing the cost of producing and shipping vehicles and ancillary equipment such as EV chargers. Our new Libra EV charger for homes and small businesses is a fully UK-compliant model made in Europe. As one of the largest charger producers in Europe, our economies of scale mean any fuel savings have a significant impact on our production costs and shipping around Europe, which trickles down to lowering the final unit price for end users.

Arguably, the same is true for EV manufacturing. With prices for essential materials like lithium, cobalt, and nickel (used in EV batteries) often tied to broader economic trends, easing inflation could slow or reverse the sharp cost increases in recent years. This could lead to cheaper battery production, which is a significant component of an electric vehicle’s showroom price.

As battery prices drop, the upfront purchase cost of EVs will become closer to parity with traditional internal combustion engine (ICE) vehicles, further accelerating the transition to electric mobility. Additionally, reduced costs and increased business appetite for investment that comes with low inflation may allow for innovations in battery technology, such as longer-lasting batteries or quicker charging solutions, to reach the market more affordably.

Insurance premiums for EVs have been a growing point of contention in the UK as insurers ramp up premiums to cover the repair or replacement of more expensive EVs and their costly components like batteries. With inflation under control, the cost of repairs, replacement parts, and labour are less likely to rise sharply, making it cheaper to maintain an electric vehicle. EVs already benefit from far fewer moving parts and less routine maintenance compared to internal combustion engine vehicles, and any further reductions in associated costs will only strengthen that appeal.

Finally, lower inflation should have a favourable impact on government policy related to electric vehicles and the transition to decarbonising UK transport. With a more stable economy, the government could potentially increase investments in EV infrastructure, such as public charging networks, or extend current incentives for electric vehicle purchases at home and for businesses, as well as subsidised charging installations. With lower or zero road tax, low BIK, free ULEZ travel, tax-break salary sacrifice schemes and leasing deals already offering a solid incentive to opt for an EV, the industry is very much hoping the government can keep up the incentivised pressure on buyers for a greener future.

Overall, the UK’s new low inflation figures present a promising opportunity for the electric vehicle market. As these economic benefits start to materialise, they could help further democratise access to electric vehicles, enabling more people to enjoy the benefits of cleaner, more sustainable transportation. With lower running costs, improved affordability, and government support likely to continue, the pathway toward a more electrified future appears brighter than ever.