Electric vehicles

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In the upcoming years, the breakthrough of electric vehicles (EVs) will transform businesses as we know them today. Among others, it will affect how to transport materials and people within several industries, such as public transportation, mail/parcel delivery, logistics, distribution, or provision of services. This thesis will explore the notion that EVs can play a significant role not only by reducing the environmental impact of transport but also by being a potential competitive advantage due to economic and social factors.

EVs are the cornerstone of e-mobility. The concept of e-mobility involves all elements within the value chain that enables EVs to be a product on the market: production, transmission and distribution of electricity, production of EVs, production and management of batteries, and finally the billing process to the customers. All companies that can take advantage of e-mobility are reacting to secure their position in this promising market segment. Naturally, electricity providers are also interested in the potential business opportunities related to e-mobility. E.ON AG (E.ON) is not an exception and wants to capture value from e-mobility.

After analyzing the potential business segments within B2B customers and E.ON's resources and capabilities, I identified E.ON's unit of provision of technical services (TS) as a potential area to combine e-mobility and E.ON's interests. As part of its business, E.ON needs a group of technicians and operators that visit customers on a daily basis so as to provide technical advices and maintenance and to undertake reparations and lecture of electricity meters. These workers constitute the TS department and move in vehicles that form E.ON's TS' fleet. This thesis proposes that E.ON considers the possibility of acquiring EVs to provide the technical services mentioned above.

There are four main reasons for EV to be an adequate means of transport for E.ON's TS:

§ Zero carbon emissions of EVs.

§ The main technical limitation of EVs (the limited driving range between two recharges) can be overcome without changing the way E.ON' TS operates.

§ The recharging time can be undertaken during night without changing any current process.

§ E.ON's TS fleet operates most in cities and EVs are especially appropriate for urban transport.

In addition, this thesis identifies the problems to be considered and the benefits of using EVs as TS vehicles for E.ON. I reflect on information gathered both through primary (interviews to industry experts) and secondary sources. After understanding the key factors of these issues, and based on this analysis, I recommend actions to be undertaken.

On the one hand, E.ON should also expect some difficulties when introducing EVs in its fleet. The first question is the economic profitability of such a decision. From a purely financial point of view, nowadays the investment in an EV compared to a traditional combustion engine vehicle does not seem to be worthwhile. In spite of lower operating costs, the upfront investment for an EV is still nearly 50% higher as compared to investment in a traditional automobile. Due to the short distance covered daily by TS vehicles, the running cost savings and the lower maintenance costs do not compensate for the high upfront investment, which increases the total cost of ownership of an EV compared to a combustion engine vehicle. The major technical limitation of EVs for TS vehicles is the reduced driving range. Besides the economic disadvantage and this technical limitation, there are some risks associated with the uncertainties about the future of the state-of-the-art technology implemented in batteries and EVs.

On the other hand, there are clear environmental and social advantages for E.ON to adopt EVs in its vehicle fleet. These benefits are as follows:

§ Improving E.ON's public image.

§ Reducing the CO2 emissions of the company.

§ Gaining first-hand knowledge about e-mobility.

§ Other secondary reasons: supporting the emerging e-mobility industry, increasing electric dependence in the market, possibility of charging for electricity at low demand hours that otherwise would be wasted, and taking the first steps towards a smart grid.

In sum, being a first adopter of EVs implies high total cost of ownership and the assumption of risks. However, after evaluating the pros and cons, there are enough reasons to recommend E.ON to introduce EVs within its fleet. Initially, a reduced number of EVs should be used as trials during two or three years. When the price of EVs and batteries decreases, and the technology and service provided improve, E.ON should increase progressively the number of EVs within its fleet. The recommended time line for the introduction of EVs is a consequence of the expected evolution of the price and technology within the next years and of E.ON's need to start improving the perception of the market about E.ON's leadership in corporate social responsibility.

1. Introduction

At the beginning of the 21st century the global community faces a great number of challenges. While some of these challenges are relatively new, others are the heritage of the excesses undertaken mainly in the last 40 years of industrialization. The rapid growth and industrial development of new economic powers, such as China and India, have also contributed to the deterioration of the situation. As a response, the international community has accelerated the process of searching and developing suitable solutions to overcome these challenges.

Among international problems, global warming might represent the major threat for the future of the humankind. If the most pessimistic expert predictions come true, we have few years to react. A critical factor for global warming is the emission of greenhouse gases, being CO2 the principal environmental hazard. For the European Commission, the negative impact of transport on the environment is obvious. In 2006, 22.8% of all CO2 emissions in the EU were caused by transport, being a 71.0% of this total due to road transport. Additionally, “urban transport accounts for 40% of CO2 emissions and 70% of emissions of other pollutants arising from road transport.”

The need and the dependence on traditional fossil energy represent another critical global challenge especially taking into account the increasing number of people having access to more energy-consuming technologies. The problem of traditional fossil energy sources is not only that they are harmful for the environment, but also that they are becoming more scarce. Many resources are being devoted to the development of new energy sources that reduce the dependence on fossil fuels. Renewable energies, such as wind, solar, biomass, or geothermal power, have increased lately their contribution within the energy production mix. However, production of energy is not the only factor in the equation. An improvement in the efficiency of energy use would also contribute to a reduction in the consumption of harmful fossil fuels.

Taking into account the current international framework and the combination of the two problems mentioned above, we can realize the importance for the society to find a means of transportation that reduces CO2 emissions and which, at the same time, is more energy efficient. For some specialists, the answer in the short-term for a smarter, more efficient and more environmental friendly urban transport is clear: e-mobility.

As an electricity provider, E.ON is interested to understand whether e-mobility is going to develop in a profitable business, as some experts predict, and thus going for a leadership position, or whether on the contrary it is wiser to wait and see how e-mobility develops and be a follower in the market. There are several reasons for E.ON to react immediately and change its quite passive position in relation to e-mobility. However, there is one reason that is the key factor: improving E.ON's current negative public image. Assuming that E.ON decides to enter the e-mobility market at this very moment, there are two customer segments for E.ON to focus on: business to consumer (B2C) and business to business (B2B).

The consumer market is not ready for e-mobility yet. There are neither mass produced EVs nor the required infrastructure available for final consumers. In addition, the price of EVs compared to traditional combustion engine vehicles is still much higher, which prevents a massive interest in e-mobility from mostly price driven consumers. Therefore, the B2C segment does not seem to be a suitable option yet. As a result, the only remaining option for E.ON to react immediately and take active part in e-mobility is B2B.

However, there are numerous opportunities to be explored within the current B2B market. Which industry to target? Which sector? Which company? Which product to offer? This thesis will give rational considerations to recommend that E.ON should use its own TS fleet as a first step within its strategy to start capturing value from e-mobility.

2. E-mobility

In order to achieve a better world to live in, the global economy must get rid of the dependence on petroleum and its derivatives. The main economic sectors dependent on oil are energy production and transportation. Both sectors have been facing accelerated developments during the last years. While the energy sector is experiencing a progressive increase in the proportion of renewable sources of energy, the transport industry is searching for the substitute to oil as fuel. Bio-fuels are being developed as a potential alternative. However, from an environmental and energetic point of view, bio-fuels are the worst possible alternative because their efficiency is low and the world would need hundreds of Amazon rainforests to provide the fuel needed. Hydrogen is considered to be a serious candidate to take the place of oil as major international fuel. But it seems to be expensive and very inefficient: “Electricity obtained from hydrogen fuel cells appears to be four times as expensive as electricity drawn from the electrical transmission grid.” As a result, e-mobility remains the most efficient and rational alternative to oil.

2.1. Overview

As stated by L. Birnbaum, RWE-Strategy management, “Electrical mobility will prevail. The time is ripe.” But, what is exactly e-mobility? Is it just about EVs? Is it about batteries? What is the role of politicians? And what is the role of big energy companies?

Electro mobility means a higher degree of energy efficiency respecting the environment. This is a very ambitious target. Therefore, it involves not only EVs but also a lot of different concepts. The main idea is to substitute the current inefficient and environmental harmful model of road transport based on oil by a model based on electricity. From a technical point of view, the model is clearly defined and feasible. However, it is related to so many improvements and changes that it will still take some years until the model is completely adopted.

The global road fleet structure will experience a deep transformation with the development of EVs. Therefore, e-mobility opens a huge range of opportunities for OEMs, battery manufacturers, energy suppliers, new entrants, politicians, and customers (both B2B and B2C). As far as car makers are concerned, new vehicles must be designed and produced. All big OEMs are competing to be the first to offer EVs at large-scale production and low price. In this race, some OEMs will lose and others will take the lead, which represents a lot of opportunities. The same idea can be applied to battery producers. They are also experiencing a fierce competition to develop the ideal battery that fulfills all customer needs.

One of the winners of e-mobility is the electricity sector. On the other hand, one of the losers is the oil industry. Both industries, included in the broad energy industry, are trying to defend their interest. The main competitors are reacting to secure their position in e-mobility. However, there are still too many uncertainties for big companies to bet definitively for e-mobility. The first company that decides to invest high volumes of resources could become the leader.

Taking into account the existence of opportunities and changes, it is normal the appearance of new entrants. After all, e-mobility is trying to substitute the oil industry, which generated a value (just crude oil) of $1.7 billion in 2007. There are already some new EV makers (Tesla Motors, Modec, Smith Electric Vehicles, Think, Fisker Automotive…) that are trying to seize its market niche. The same is happening in the battery industry, which faces especial intense competition due to the increasing number of Asian battery producers. However, the risk of new entrants is not only for car and battery makers. Selling electricity to the customers is also an interesting business, and companies with new concepts intend to capture value by placing themselves between electricity producers and final customers. This value captured is a potential lost for electricity providers. For example, the company Better Place has become already a global competitor in e-mobility for energy providers. Better Place claims to be “… the world's leading electric vehicle (EV) services providers, catalyzing the transition to sustainable transportation.” The company has already signed agreements with Israel, Hawaii, Denmark, and Australia to provide with infrastructure and energy to power EVs.

E-mobility also represents a challenge for politicians. In fact, politicians must regulate and control to assure a better quality of life for the citizens they represent, and e-mobility offers a unique opportunity to achieve it. Politicians can influence e-mobility and the pace of its introduction by, among others, releasing new environmental limitations for CO2 emissions, increasing the taxes for fossil fuels, or helping to increase the demand for EVs by reducing direct taxes for these vehicles. These decisions will play a decisive role in the future of the society.

Customers should also benefit from e-mobility, not only from an environmental and social perspective but also from an economic point of view. For companies, e-mobility can be a differentiation factor and a cost reduction. For consumers, it can represent a reduction in the transport costs and a relief for their environmental and social concerns.

All stakeholders mentioned above (OEMs, battery manufacturers, energy suppliers, new entrants, politicians, and customers) realize that EVs are the cornerstone of e-mobility. The development pace and success of e-mobility depends on the development pace and success of EVs.

2.2. Electric vehicles

For the Electric Auto Association Europe, the definition of EV is very straightforward: it is a vehicle with electric propulsion. The origin of EVs goes back to the first half of the 19th century. During the second half of the 19th century and most of the 20th century, EVs were progressively pushed into specific roles, such as rail transport, trolleybuses and forklift trucks. Products derived from oil became the fuels most used. The last decade of the 20th century and the beginning of the 21st century have witnessed the resurgence of EVs, mainly due to energy efficiency and environmental issues. The current product range of EVs is quite extensive. In addition to the traditional specific roles mentioned above, nowadays EVs manufacturers also offer electric buses, minibuses, trucks (with a gross vehicle weight up to 12,000 kg), vans, SUVs, cars, motorbikes, bicycles, skateboards, and segways. However, most of these vehicles are still in a pre-series stage. Due to the long list of possibilities behind the term of EVs and for a better understanding and clarity of this thesis, when using the term EVs I will refer only to electric cars.

2.2.1. Advantages of EVs

There are several reasons why EVs are gaining importance and are seen as the future of road transport, especially for urban road transport. The first of these reasons is that EVs are environmental friendly not only because they do not release pollutants while operating but also because they are more energy efficient than the rest of the options. As a rule of thumb, EVs transmit three quarters of the energy in the batteries to traction the wheels, compared to the ca. 15% of traditional combustion engine vehicles. Another reason, which is related to the two reasons mentioned, is reducing the energetic oil dependence because electricity can be produced locally in different ways.

Due to the characteristics of electric motors, some performance features of EVs also present advantages in comparison to vehicles with other types of motors. EVs are nearly noiseless, which benefits the passengers inside the vehicle and the pedestrians on the streets. Additionally, electric motors provide the power in a smoothly way, which reduce vibrations to a minimum level. Finally, the potential acceleration of EVs is very high. All these performance advantages make EVs an optimal road transport for some applications, especially for urban transport.

Fuel costs of EVs are low in comparison to all the others fuel variants. As a general rule, an EV can travel eight kilometers per kilowatt-hour (kWh). Assuming a price of 0.22 € per kWh, the cost per kilometer driven with an EV is 2.75 cents. On the contrary, a standard diesel car consumes approximately 7 liters per 100 km. Assuming a diesel price of 1.20 € per liter, the cost per kilometer driven with a diesel fueled car is 8.4 cents, which is more than three times higher than the cost of kilometer driven with an EV. Maintenance costs of EVs are also low because EVs do not need any oil or filter changes. Therefore, the number of total services required within EVs' life span is low. Additionally, the mechanical simplicity reduces the probability of mechanical breakdowns and the costs of the repairs.

As final reason for supporting EVs is the potential development of smart grids. There are lots of futuristic applications that are being considered by electric companies. One of the most relevant is the use of EVs as electricity storage that could be used in peaks of demand by sending back electricity into the grid. Consumers could take advantage of this application by buying electricity to charge the batteries of the vehicle in low demand hours (when electricity is cheaper) and selling it back to the grid operators in high demand hours (when electricity is more expensive). This idea, together with many others, would make possible the concept of smart grid. However, to get to this point several technical improvements are needed, being the most crucial the development of smart meters. It will still take some years and successful developments to implement the ideal concept of smart grid.

Table 1: Summary of advantages of EVs

Advantages of EVs compared to combustion engine vehicles

§ Environmental friendly

§ Energy efficiency

§ Reducing energetic oil dependence

§ Low operation costs

§ Low maintenance costs

§ Mechanical simplicity

§ Reduced noise

§ Reduced vibration

§ Strong acceleration

§ Potential for smart grid

2.2.2. Drawbacks of EVs

As explained before, EVs present a series of advantages that make them be a very interesting option for road transport in the future. But, why are they not already packing the roads all over the world? What are the drawbacks?

The main problem that EVs are facing to reach the mass market is their purchasing price. Theoretically, EVs (without taking into account the batteries) should be as expensive as traditional combustion engine vehicles. The components are basically the same, and the assembling process is nearly identical. However, due to economies of scale, the production of oil fueled vehicles is cheaper. If the predictions of experts come true and the costs of production of EVs is reduced by five percent per year, in the next few years producing EVs should be as expensive as the current vehicles on the street. Additionally, government and industry incentives are expected, which will stimulate the uptake of EVs.

Additionally, the price of the batteries should be included into the total purchasing price. Nowadays, the price of the batteries is high. For example, a lithium-ion battery with a capacity of 15 kWh (enough for a car to travel 120 km without having to recharge) costs approximately 8,000 €. Fortunately, the price of batteries has decreased in the last years at an annually rate of six to eight percent and is forecasted to continue decreasing approximately by the same rate during the next ten years. Assuming the costs reduction in production and batteries, the economic analysis for the purchase of an EV could change radically within a short period of time. Depending on the application and the use, the total cost of ownership of EVs can be today negative compared to existing vehicles, but it could be positive after some months.

2.2.3. Technical limitations of EVs

Additionally to the drawback of the high purchasing price, there are some technical limitations that prevent EVs from breakthrough into the market. Most of these constraints are related to the state-of-the-art of the batteries. Overcoming these limitations will condition EVs' future. For these reason battery producers have become a key success factor for EVs and, consequently, for e-mobility.

The driving range is the distance that an automobile can drive before having to refuel. While some diesel vehicles can drive over 700 km without refueling, EVs must recharge batteries every 150 to 200 km. However, some manufactures claim that the driving range of their EVs is 400 km. Although the battery technology is improving continuously and it is foreseen that the driving range will increase in the next years. In spite of the fact that most drivers do not travel more than 60 km a day, the driving range limitation is still a major obstacle for a lot of customers.

The second limitation is obvious once the user has to recharge the battery of the vehicle. The time needed to fully recharge the battery is considerably long. Depending on the kind of power source from the grid and the capacity of storage of the battery, the recharge time can take up to ten hours. However, the typical recharge time is between four and eight hours. With a three phase power the time can be reduced down to two or three hours. Another possibility for charging the battery is changing the complete battery pack. If the EV is prepared adequately for that purpose, the whole process of switching batteries can take approximately one minute. However, this switching-battery concept is not supported by most car manufacturers.

Two additional limitations are related to the battery. The first is the high weight and significant space that are required by the battery packs, which condition the design and comfort of the vehicle. The last limitation is the number of possible charging cycles that a battery can experience before losing a considerable amount of storage capacity. Some battery makers claim that their batteries can be charge more than 1000 times maintaining 100% of its capacity. However, this figure must still be improved to completely fulfill the customers' needs.

Finally, there is one further limitation that is not related to batteries. The constraint is the infrastructure required to provide electricity to charge a high number of EVs at the same time. There are some concerns about the capacity of the grid to provide the amount of electricity required while charging a lot of EVs simultaneously, and eventually electricity providers should invest a high amount of money to improve the infrastructure.

Table 2: Summary of drawbacks and technical limitations of EVs

Drawbacks and technical limitations of EVs compared to combustion engine vehicles

§ High purchasing price, both for

- Vehicle

- Battery

§ Reduced driving range

§ Long recharging time

§ High weight of the battery

§ Large space required for the battery

§ Limited number of recharging cycles

§ Limitation on the electricity distribution infrastructure

2.3. General impact of EVs for provision of technical services

The main purpose of this thesis is to identify the impact of e-mobility when applied to the provision of technical services of a concrete electricity provider. However, before analyzing specifically E.ON's TS, it is interesting to analyze how the above mentioned advantages, drawbacks, and limitations of EVs affect generically all types of technical services. The way they can affect the provision of technical services can be divided into three groups, depending on the level that each feature affects the operations of technical services: strong direct impact, potential indirect impact, and low or no impact.

The features that have a strong impact in TS can be divided into two subgroups. The first subgroup consists of the features that have a positive direct impact, such as the energy efficiency, the low operation costs, the low maintenance costs, and the operational features (reduced noise, reduced vibration, and especially strong acceleration). The second subgroup is formed by features that have a negative impact. The high purchasing price is a significant economic drawback, and the reduced driving range is a major factor that limits the normal operations within E.ON TS.

The list of features that can have a potential indirect effect on TS is divided into positive (environmental friendly, mechanical simplicity) and negative effects (long recharging time, limited number of recharging cycles). Finally, there are some features that have low or no impact. These characteristics are the high weight of the battery, the large space required for the battery, reducing energetic oil dependence, potential for smart grid, and limitation on the electricity distribution infrastructure.

Table 3: Summary of impact of EVs‘ features to technical services

Impact of EVs' features to technical services divided by the level of impact




§ Positive

- Energy efficiency

- Low operation costs

- Low maintenance costs

- Reduced noise

- Reduced vibration

- Strong acceleration

§ Negative

- High purchasing price

- Reduced driving range

§ Positive

- Environmental friendly

- Mechanical simplicity

§ Negative

- Long recharging time

- Limited number of recharging cycles

§ Reducing energetic oil dependence

§ Potential for smart grid

§ High weight of the battery

§ Large space required for the battery

§ Limitation on the electricity distribution infrastructure

In sum, TS can enjoy potential benefits from the characteristics that EVs offer. The two drawbacks are the high purchasing price and the reduced driving range. However, as mentioned above, it is expected that the purchasing price will decrease significantly during the next years and the driving range will increase, which will make EVs an even more attractive option for TS than nowadays.

3. E.ON's Technical Service

To analyze the suitability of EVs features for E.ON TS it is very important to understand the way in which TS operates, the services provided, the kind of vehicles currently within E.ON's fleet, and the role and needs that the TS' vehicles must fulfill.

3.1. Services provided

“Our Technical Network Services aim at municipal utilities, distributors, industrial and commercial customers. Gladly, we also can assemble a customized offer.

§ Streetlights: Lighting in public spaces.

§ Medium voltage and transformer stations: We support you as part of your obligation on operators.

§ Substations and transformers: We build your substation or switchgear building.

§ Gas supply: Planning and construction of gas pressure regulation and measurement systems.

§ Telecommunications: We support you in communication networks.

§ Training”

Additionally to these services, the group of technicians and operators that constitute E.ON TS also provides maintenance, sometimes carries out the lecture of electricity meters, and very often undertakes reparations of breakdowns.

Standard services are provided from Monday to Friday. However, there is a group of technicians on guard duty 24 hours a day, seven days a week. The function of this group is to be prepared for any kind of breakdown that could happen unexpectedly. Due to the crucial importance of electricity for some customers, an adequate answer for the reparation of breakdowns must be undertaken as soon as possible.

3.2. Operations

A normal working day for a technician within E.ON TS starts when he arrives to the base on his own car. After dealing with some routine procedure (paperwork, new spare parts, etc.), he gets into a car owned and made available by E.ON. From this very moment, every day is different, not only for him but also for the rest of his work colleagues. There are many different variations that can affect the working day. One of the changing parameters is the number of visits. One day a technician might have to pay visit to just one customer. And next day he could have to visit four other customers, or just go back to the same place as the previous day. The amount of tools and spare parts required every day also changes, which has an influence in the vehicle to be used. Normally, one technician uses always the same vehicle, because it is usually adequate to fulfill his space needs. However, for specific works the technician could require a bigger vehicle.

The location of the places he has to attend is also quite diverse. He might have to travel 250 km to a breakdown, or he might have to attend to the construction of a new street placed just 15 km away from the base. None of the technicians has a predetermined of fixed route. On average, a vehicle of E.ON TS fleet travels daily 90 km. However, the dispersion of the distance travelled within a day is broad.

The driving range of EVs is precisely the main drawback for the operations of TS. While the average daily distance travelled is low enough to be covered by EVs without needing to recharge the vehicle, the broad dispersion of the real distance driven might cause problems for the technicians driving EVs. In addition, in the destination or on the way there might be no adequate place to charge the batteries of the EV. Therefore, there is a risk for the worker to be left in the middle of no point without electricity in the batteries of his EV. This would be discouraging for the technician and expensive for E.ON.

In fact, during the interviews undertaken regarding the practice project “E-mobility opportunities for E.ON. Capturing value from the existing customer base”, the information appeared that technicians have some reservations to use the compressed natural gas (CNG) vehicles existing with E.ON fleet because of what they said it is their reduced driving range. However, the 350 km driving range of CNG vehicles is more than enough for the operations of TS. Additionally, the net of gas natural stations is being spread and just in Germany there are already 835 points to refuel gas natural Obviously, technicians are accustomed to combustion engine cars, which provide a long driving range. For them even 350 km is too short, although it covers their needs extensively. Thus, manufactures of EVs must improve the driving range, but anyway it will be hard to change this irrational response to driving range below the current standards.

At the end of the day, the technician drives back to the base. He parks the E.ON's vehicle in the parking lot and takes his own car to drive back home. The vehicle stays parked during the evening and night. This fact suits perfectly with the needs of EVs because this time the vehicle stays parked could be used to recharge the batteries. In that way, next morning the batteries would be filled up for the daily use.

3.2.1. Fleet

E.ON TS fleet consists of combustion engine and CNG vehicles. The proportion of each vehicle varies depending on the subsidiary. For example, E.ON Hanse AG owns 400 diesel and gasoline, and 230 CNG vehicles. In total, E.ON has ca. 3,500 vehicles, ca. 3,000 diesel and gasoline, and ca. 500 CNG.

The range of brands and models within the fleet is broad. There are Ford Transit, Opel Zafira, Opel Corsa, Opel Combo, Volkswagen Caddy, and Volkswagen Passat Variant, just to mention some. The vehicles are chosen depending on the needs of a determined technician regarding space for tools and spare parts, comfort and maneuverability.

4. Impact of EVs within E.ON's TS fleet

Based on the previous analysis of E.ON's TS' operations and the technical features of EVs, I identified the area of provision of technical services (TS) as a suitable match for e-mobility and E.ON's interests. The logical proposal is the purchase of EVs for its use in E.ON's TS' fleet. However, a deeper understanding of the potential pros and cons is needed before making any detailed recommendation for the future. Identifying the economic, environmental and social effects of the proposal from E.ON's point of view is necessary.

4.1. Economic comparison

In all business decisions the first question is the economic profitability. However, the costs of batteries and EVs change continuously and are going to keep on changing for the next years. For this reason, the calculations mentioned in this paper must be reviewed in detail to update them at the required moment. The purpose of this economic analysis is to serve as a reference for the decision making process and not to undertake deep financial and detailed calculations. For the economic comparison I adapted to the needs for the matter at hand the framework of analysis used by Joost van den Bulk in his paper “A cost- and benefit analysis of combustion cars, electric cars and hydrogen cars in the Netherlands.” I used this model in detriment of others for three main reasons. First, it represents reliably all the major costs factors and their influence on the total costs. Second, it is very intuitive. Third, it does not take into account the time value of money.

4.1.1. General data

A data set for the calculations must be defined before analyzing and making a comparison between EVs and combustion engine cars. Three important figures were gathered through primary research. The average daily distance travelled will be considered 90 km, which is the average distance travelled by E.ON's TS vehicles. It means a distance driven of ca. 21,000 km per year. Further internal information is that E.ON changes its vehicles every 6 years, which means that a car drives ca. 125,000 km until it is sold. According to battery producers, the batteries installed in EVs can be recharged to drive that total distance without experiencing a considerable reduction in the store capacity or having to be exchanged. Therefore, once the EV is purchased, no extra investments in batteries are needed during their expected service for E.ON. The third figure obtained through internal E.ON's sources is that average annual maintenance costs for combustion vehicles is ca. €400. As an EV contains less moving components, there is less risk for breakdowns and lower need for maintenance. Additionally, no oil or filters are required. Experts estimate that maintenance costs for EVs will be ca. 50% of diesel or petrol cars. Therefore, I considered €200 to be the annual maintenance costs for an EV.

The historical electric car manufacturer Detroit Electric is going to launch at the beginning of 2010 a new EV: the model Detroit Electric e46 (for detailed technical specifications see Appendix B “Technical specifications Detroit Electric e46”). This EV is an adequate option for E.ON. A version of the car with a driving range of 320 km will cost between $28,000 and $31,000. The worst case would represent a purchasing price of ca. €22,000 (exchange rate of 1.4 €/$). For the combustion engine car the estimated price is €15,000, which is the price for a new Opel Corsa with an Ecotec engine. The residual value of the combustion car is considered to be €4,000. This consideration is based on a comparison of actual prices in Germany for similar six years-old vehicles with a mileage of approximately 125,000 km. However, there are still no second hand EVs in the market. Considering the mechanical simplicity and good expected mechanical condition, the low maintenance costs and the low running costs of EVs, the expected residual value of an EV should be significantly higher than for a comparable combustion engine vehicle. Therefore, the educated guess of a residual value of €6,000 for an EV should be a close to reality worst case figure.

A further cost to be considered for the introduction of EVs is the installation of the required infrastructure of charging points. The company Electromotive Ltd. offers the Elektrobay charging station (suitable for charging two EVs at the same time) and its installation for £13,000 (€14,300; exchange rate of 1.1 €/£). This price includes the installation of the charging post in a public place, which is more expensive than the installation at E.ON's private parking lot. Thus, considering my personal experience in installation projects and conductors, I estimated that the highest costs for E.ON be ca. €12,000.

Additionally, it is necessary to know the fuel efficiency of both options. As stated in the chapter “2.2.1 Advantages of EVs”, a common rule within the EV industry is that an EV can drive approximately eight kilometers per kWh, while a standard fuel efficiency for a combustion engine car is seven liters per 100 km.

Table 4: Summary of the parameters used for calculations and economic comparisons between EVs and combustion cars



Purchasing price (€)

Average daily distance driven (km)

Life span (years)

Residual value (€)

Infrastructure costs (€)

Maintenance costs per year (€)

Fuel efficiency (km/kWh - l/100km)















* For two EVs

Finally, fixed costs were considered similar for both types of vehicles. Therefore, potential governmental subsidies for EVs, different insurance costs or different vehicle registration taxes were not considered.

4.1.2. Calculation model

As explained before, I have adapted Joost van den Bulk's model for the specific purposes of this thesis. The reason for having to adapt the model is that van den Bulk uses the calculations to analyze two scenarios, depending on two predictions about the future development of gasoline price. However, the purpose of this thesis is quite different. The target is to compare the costs of EVs to those of combustion cars. Once the costs are compared, the major costs factors that influence the total costs will also be analyzed.

There are three main reasons to use this model. First, the major cost factors are clearly defined and represented, allowing a reliable analysis. Second, the results are very intuitive, which makes possible a direct understanding of the weight of each factor and its influence in the final costs. Third, the model does not consider the time value of money, which simplifies the calculations and make a sensitivity analysis feasible under the time constraint of this thesis.

In order to define the model, the first decision to take is which unit to define as a benchmark. A sound unit in order to compare the total costs of EVs to those of conventional cars is the amount of money it costs for a vehicle to travel one kilometer. In this way, a comparison is direct and intuitive. The total costs per kilometer have four major components:

§ Depreciation of the vehicle (DV): subtracting to the purchasing price (PP) the residual value (RV) of the vehicle at the end of the life span we obtain the amount of money to depreciate. This figure can be divided by the expected number of kilometers driven during the life span of the vehicle (KLS) to obtain the costs of depreciation per kilometer.

§ Depreciation of the infrastructure (DI): dividing the investment in infrastructure (IN) by the total expected number of kilometers driven during the life span of the vehicle (KLS) we obtain the depreciation of the infrastructure per kilometer.

§ Fuel costs (FC): there are two methods, depending on the fuel used:

- Electricity: dividing the price of a kWh (PK) by the electricity efficiency (EE; in kilometers per kWh) we obtain the electricity cost per kilometer.

- Diesel/petrol: multiplying the fuel efficiency (FF; in liters per 100 km) to the cost per liter of fuel (CL) and dividing by 100 we obtain the fuel cost per kilometer.

§ Maintenance costs (MC): dividing the annual expected maintenance costs (EM) by the expected annual number of kilometers driven (KY) we obtain the maintenance costs per kilometer.

Finally, the total costs per kilometer (TC) is calculated adding the four costs mentioned:

Substituting in the formula (4.6) the equations (4.1), (4.2), (4.3), (4.4) and (4.5) we obtain two expressions for the total costs per kilometer, depending on the type of fuel consumed:

4.1.3. Calculation for provision of E.ON's technical services

Taking into considerations the general values summarized in the Table 4 and following the calculation model detailed above we can obtain the total costs per kilometer driven for both EVs and combustion engine cars. As explained, there are four major cost components:

§ Depreciation of the vehicle:

- Combustion engine car:

- Purchasing price: €15,000

- Residual value after six years: €4,000

- Expected number of kilometers driven during six years: 126,000 km

- Result applying (4.1): depreciation costs of €0.09 per kilometer driven

- Electric vehicle:

- Purchasing price: €22,000

- Residual value after six years: €6,000

- Expected number of kilometers driven during six years: 126,000 km

- Result applying (4.1): depreciation costs of €0.13 per kilometer driven

§ Depreciation of the infrastructure:

- Combustion engine car:

- Investment in infrastructure: 0

- Result applying (4.2): costs of depreciation of the infrastructure: 0

- Electric vehicle:

- Investment in infrastructure for two EVs: €12,000

- Investment in infrastructure per EV: €6,000

- Expected number of kilometers driven during six years: 126,000 km

- Result applying (4.2): costs of depreciation of the infrastructure of €0.04 per kilometer driven

§ Fuel costs:

- Combustion engine car:

- Fuel efficiency: 7 liters per 100 km

- Fuel price: €1.20

- Result applying (4.4): fuel costs of €0.08 per kilometer driven

- Electric vehicle:

- Electricity efficiency: 8 km per kWh (general rule mentioned above

- Electricity costs: €0.22 per kWh

- Result applying (4.3): electricity costs of €0.03 per kilometer driven

§ Maintenance costs:

- Combustion engine car:

- Annual maintenance costs: €400

- Expected number of kilometers driven during one year: 21,000 km

- Result applying (4.5): maintenance costs of €0.02 per kilometer driven

- Electric vehicle:

- Annual maintenance costs: €200

- Expected number of kilometers driven during one year: 21,000 km

- Result applying (4.5): maintenance costs of €0.01 per kilometer driven

§ Total costs: finally, applying (4.6) we obtain the total costs per kilometer driven. The final result is a cost of €0.19 per kilometer travelled for the combustion car, and €0.21 per kilometer for the EV.

Table 5: Summary of the total costs per kilometer driven for EV and combustions cars



Vehicle depreciation (€)

Infrastructure depreciation (€)

Fuel costs (€)

Maintenance costs (€)












The weight that each cost factor represents within the total costs per kilometer driven is represented in the Figure 1. Figure 1 confirms that, as commented above, the depreciation cost of the vehicle is the main cost factor for EVs. If, as experts predict, this upfront investment is reduced in the upcoming years, the economic analysis will be favorable for EVs. Additionally, Figure 1 also shows the lower weight of fuel costs within total costs for EVs in comparison to combustion engine vehicles.

Comparing the results, from an economic point of view EVs do not seem to be worthwhile. The total costs for EVs are ca. 11% higher than for traditional cars. Extrapolating this difference in cost per kilometer to the expected life span of the vehicles, the total cost of ownership for EVs is ca. €2,700 higher than for traditional combustion engine cars. However, as some assumptions were made, we can analyze further: What influence has the electricity price? And the daily distance driven? And the life span of the vehicle? What is the price for EV to breakeven in comparison to traditional cars?

4.1.4. Influence of electricity price

As mentioned above, I considered an electricity price of €0.22 per kWh. Depending on the recharging time and the geographic location, and taking into account that E.ON is an electricity producer, the electricity costs for E.ON can be clearly lower than €0.22 per kWh, which might have a significant impact on the final results. Following the calculation model applied above, a sensitivity analysis can be undertaken to study the influence of the electricity price on the total costs and to calculate the electricity price that breakevens costs.

The sensitivity analysis is undertaken by changing the value of the electricity price in the formulas (4.7) and (4.8) and calculating the total costs per kilometer driven for each value. The analysis starts with a value of 0 €/kWh, and increases by 0.01 €/kWh until 0.25 €/kWh. For more details about the values obtained see Appendix C “Sensitivity analysis of total costs depending on electricity price (€/kWh)”. The Figure 2 shows the results of this analysis by showing the relationship between electricity price and total costs per kilometer driven.

As the electricity price is not a variable within the formula (4.8), changing its value does not change the total costs for a combustion engine car. Therefore, the Figure 2 shows a constant total costs for combustion car, independently of the electricity price. As a result of this analysis we can come to the conclusion that if the real kWh cost for E.ON is lower than €0.05, an EV is economically a better option compared to a combustion engine car.

4.1.5.Influence of the daily distance travelled

As the operating costs of EVs are lower than those of combustion vehicles, the more the distance travelled, the smaller is the economic difference between both options. What is the breakeven point? Following the calculation model applied above, a sensitivity analysis can be undertaken to study the influence of the daily distance travelled on the total costs and to calculate the distance that breakevens costs. The sensitivity analysis is undertaken by changing the daily distance travelled in the calculations done in the chapter “4.1.3. Calculation for provision of E.ON's technical services.” Iterating these calculations for different distances we can draw the Figure 3 (for detailed values within this graph see Appendix D “Sensitivity analysis of total costs depending on daily distance travelled (km)”). As a result of this analysis we can come to the conclusion that if the daily distance travelled by the vehicle is more than ca. 125 km, an EV is economically a better option than a combustion car.

4.1.6. Influence of EV's purchasing price

The total purchasing price (car plus battery) is the main economic drawback of EVs. In the upcoming years the price of EVs will experience a continuous decrease. The question is: how much must the price decrease for EVs to be economically as good as current vehicles? Following the calculation model applied above, a sensitivity analysis can be undertaken to study the influence of the EV's purchasing price on the total costs and to calculate the price that breakevens costs. The sensitivity analysis is undertaken by changing the EV's purchasing price in the calculations done in the chapter “4.1.3. Calculation for provision of E.ON's technical services.” Iterating these calculations for different prices we can draw the Figure 4 (for detailed values within this graph see Appendix E “Sensitivity analysis of total costs depending on EV's purchasing price (€)”). The breakeven point will be reached with a purchasing price for an EV of €19,300, which means a reduction of 12.2% from its current price.