New Ownership Model Accelerates Adoption of Electric Vehicles

25 September 2017 Dashboard Insights Blog

While recent innovations in batteries have been driving down the cost of electric vehicles, electric vehicles still initially cost a premium over their gasoline-powered counterparts, even with the assistance of large tax subsidies.  However, the real savings come over time as the electricity required for recharging a vehicle’s battery is less expensive than a tank of gas and fewer moving parts means fewer fluids to replace and less parts undergoing wear and tear.  Even the brakes last longer because regenerative braking from the electric powertrain replaces rotors and brake pads for most braking needs.

Although the long-term cost savings of electric vehicles are easily recognizable, the upfront financial burden still gives consumers pause.  However, the automotive industry is finally taking note as manufacturers unveil all-inclusive leasing or rental programs.  For example, these programs offer the car with maintenance and insurance at a flat rate.  In a state, such as Michigan, with high automobile insurance burdens, this alternative all-inclusive model can make access to a vehicle more affordable than owning and insuring a vehicle year-round.

GM’s Maven Gig program allows ride-sharing and delivery drivers to rent a car on a weekly basis at a flat rate.  The program lists a compact, gas-powered model starting at $189 per week, with the all-electric Chevy Bolt starting at $229 per week.  While the Chevy Bolt represents a price premium over the conventional gas-powered models, GM reports that drivers are saving about $70 per week on fuel costs.  Essentially, the leasing model allows drivers to recuperate the electric price premium on a monthly, or even a weekly basis.  Volvo, which earlier this year pledged to transition to a fully-electrified lineup of vehicles, is also adopting a similar model with its Care by Volvo program, which should help consumers manage the costs of their electric vehicles as they are introduced.

This same model is finding its way to the municipal level as well.  Proterra, an electric bus manufacturer, has announced a program for leasing five buses for three-year terms to New York’s MTA.  Under the program, Proterra estimates savings of approximately $560,000 on maintenance and operating costs.  However, the fine print shows that this estimate is based, in part, on the annual average maintenance and operating savings over a 12-year life of a bus.  While New York MTA reaps the benefits of the savings immediately due to the lease terms, Proterra takes the initial cost hit for the bus and must continue to lease it out for the remaining 9 years of service life to realize the operating savings.

Even as the new ownership model is a boon for consumers, it raises new challenges for manufacturers.  By replacing the traditional ownership model with a leasing model, the burden for the price premium shifts from the consumer to the manufacturer, which not only must front the capital for the vehicle inventory itself, since the manufacturers are retaining ownership of the vehicles, but also the premium for the electric drivetrain.  As the new ownership model is adopted more widespread across the industry, these new lease fleets will mark a sharp increase in inventory on corporate balance sheets.  However, by prolonging ownership of these fleets, manufacturers may exert stronger control over pricing in the used car market as it sells off older fleet vehicles.

Whether on the side of the consumer, the municipality, or the manufacturer, the vehicle ownership model is showing early signs of disruption, even from the industry’s biggest players.

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