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The United States wants to lessen its reliance on China when it comes to electric vehicle (EV) production. A proposed $7,500 tax credit set to kick in come 2024 is held by most to be the key to increasing EV sales stateside. Yet, US law dictates the credit cannot be used to purchase cars with battery components that come from a “foreign entity of concern.” The interpretation of that phrase will likely dictate the future of the US EV rollout.

At the heart of this struggle are Ford and General Motors (GM). While there are other EV manufacturers to be certain, Ford has caught the eye of lawmakers and members of Congress with its proposed plans for a $3.5 billion battery factory. The Michigan plant would be one-of-a-kind, but it would also depend heavily on the Chinese firm Contemporary Amperex Technology Co. Ltd (CATL). Ford is interested in CATL’s technology to make lithium-iron-phosphate batteries. At an industrial scale, these batteries are cheaper than the alternatives and would greatly reduce production costs. Yet, an agreement like this would likely run against the “foreign entity of concern” clause.

Meanwhile, crosstown rival GM does not have any planned partnerships with Chinese battery firms and is making this position known. Should Ford be able to move ahead and offer EVs with the $7,500 tax credit, the automaker would gain a relevant technological and cost advantage over GM. Understandably, GM is calling for a strict adherence to the “foreign entity of concern” rule while Ford is positioning its deal with CATL as a licensing agreement and not a joint venture. This means the subsidiary that operates the Michigan plant would be owned by Ford and they would then pay CATL royalties for the use of their technology.

China is a prominent player in the lithium-ion battery supply chain. Last year roughly 65% of all graphite mined in the world (key raw material for batteries) was from China. In terms of chemical refining and production, all spherical graphite and nearly all manganese refining occur in China, and the Asian giant controls 70% of battery-cell production. Ford defends its position by citing that a deal with CATL could bring substantial advanced technology knowledge to the US and that cutting the US off completely to Chinese partnerships could set the domestic battery market back for decades.

On the other end, should Ford be allowed to move forward as planned, some in Congress fear this will simply push GM and others to form similar partnerships with other Chinese firms thus further integrating the two nations. Both Democrats and Republicans have enough folks on both sides of the aisle that agree on ridding the US of excess Chinese reliance. But without the $7,500 tax credit bridging the gap between a new EV and a new gas-powered car, a gas-powered option will likely win out for most consumers.

Electric vehicles are getting increasingly popular these days, with data from Goldman Sachs predicting that EVs will make up about half of all vehicle purchases worldwide by 2035. Countries worldwide are pushing for more EV adoption, with governments offering perks like number-coding exemptions, streamlined registration processes, and even tax incentives. Proponents are touting electric cars’ lower costs in terms of consumption and maintenance. Because of this, some business owners are starting to shop around to change their business cars to the more environmentally friendly option. But is it really the best choice?

The Costs of Switching to Electric Vehicles For Business

Like all aspects of business, important decisions must be made based on logical and empirical evidence. In this article, we’ll examine the costs associated with switching to an electric vehicle for your business.

Purchase price

By the end of 2022, the difference between the average cost of an EV and a traditional internal combustion engine (ICE) vehicle was around $16,000. While the upfront cost isn’t the most crucial consideration when switching your business vehicle to an EV, the large price disparity might raise eyebrows and turn a few interested businesses away. In some instances, $16,000 is enough to buy another ICE vehicle.

There are a few reasons why electric cars are more expensive. Here are the notable ones:

New Production Requirements: Electric vehicles in their current form are a relatively new technology, which means producing cars is more expensive. Charging infrastructures, regenerative braking, advanced driver assistance systems, interconnectivity protocols for updates, and parts production need to be done from scratch and can bring higher EV prices.
Research and Development: Developing existing electric vehicle technology, including efficient electric motors and advanced battery management systems, requires significant investments in research and development. While different governments give manufacturers incentives and allow more relaxed regulatory requirements to increase production, R&D costs are typically passed on to consumers.
Battery: Like with the engine assembly for an ICE car, the battery serves as an electric vehicle’s heart and sole energy source. These rechargeable batteries require pricey raw materials like lithium, manganese, and cobalt.
Lower competition: Tight competition is often followed by favorable market prices for any product. And while many car manufacturers are stepping into the EV scene, the market is still not crowded enough to warrant a price war that will make said cars more affordable.
Limited Production Scale: EVs have not yet achieved the same mass production level as traditional vehicles (although Elon Musk and Tesla are certainly taking a stab at it with their promised 20 million cars produced yearly by 2030). In the meantime, economies of scale are not fully realized. As production volumes increase and the production process gets cheaper and faster, the cost per unit is expected to decrease.

The silver lining

As with all new and emerging technologies, prices tend to slope downward as time passes. We’ve seen this trend with personal computers, storage devices, televisions, solar panels, etc. Therefore, it’s only reasonable to expect EVs will become cheaper to produce in the future, resulting in more affordable prices for consumers.

Insurance

Expensive things tend to cost more to insure, and electric vehicles are more expensive than ICE cars. But how much more expensive is it to insure electric vehicles than regular cars?

A limited study conducted by MoneyGeek involving 17 electric vehicle models found that the EV cars were approximately 15% more expensive to insure, and 15 of the 17 vehicles’ premiums are above the national average for monthly insurance payments.

Forbes did similar research with a more expanded sample size (41 of the top-selling EVs in 2022) and arrived at the same conclusion. They noted that EV insurance premiums reach up to $2,280 per year and are about $100 more annually than traditional ICE vehicles on average. That extra hundred dollars might not seem like a considerable sum, but it might be a dealbreaker for some businesses.

Taxes

In the United States, the IRS offers up to $7,500 in tax credits for people and businesses that purchase qualified electric vehicles from 2023 onward. The IRS also expanded its qualifications to include mineral and battery component requirements.

Several EU member states and Asian countries like the Philippines and China offer similar incentives to promote the adoption of electric vehicles.

However, some taxes are levied against EVs. In the US, for example, 33 states charge EV owners an additional yearly fee to drive their cars. Texas, the state that most recently enacted the tax, is asking EV owners to pay $200 on top of their usual auto registration fees, which will go towards maintaining roads.

California has a similar arrangement; EV owners pay an additional $100, which goes up annually. Oklahoma charges an annual EV licensing fee based on weight, with vehicles weighing more than 26,000 pounds being charged $2,250 yearly.

The point is that businesses looking to buy electric vehicles must conduct in-depth research on applicable taxes before switching.

Charging costs

Pure electric vehicles and hybrids can be charged through designated charging stations. Some stations are free to use, while some require payment and may charge based on usage, kilowatt per hour, or charge time. It is no secret that electric vehicle charging is notably cheaper than filling up a gas-powered car or truck. How much cheaper depends on the model and battery size, but we can safely say that it is priced lower than gas or diesel across the board. Some sources claim that a full charge can cost between $10 and $30, which can present massive savings for businesses, especially over extended periods.

However, a few factors can affect charging costs for EVs. Businesses that require multiple EVs for fleet operations may need to look into installing their own charging stations, as public charging stations may not be the most reliable option for their on-demand charging needs.

Type of charging stations

There are three levels of charging stations. Level 1 chargers are better for residential vehicles due to their slow charging times and other limitations.

Level 2 chargers, meanwhile, are more suited for cars and other light-duty vehicles up to trucks. Each of these stations can cost up to $6,000 to install.

Level 3 chargers are used for heavy-duty vehicles and can reach up to $80,000 in installation costs.

Maintenance and repair costs

Traditional ICE vehicles require routine maintenance to keep all systems running in decent condition. The frequent maintenance visits are a direct result of the complexity of a gas-powered vehicle, i.e., more parts mean more points of failure. Electric vehicles have fewer moving parts, so they don’t need to be serviced as frequently. However, not frequent doesn’t mean never.

Most sources agree that electric vehicles are cheaper to maintain (up to $949 less annually). This is for regular maintenance checks and typical consumable replacements. The biggest cost of EV maintenance comes from its lithium-ion battery. Most EV manufacturers cover battery replacements for the first eight years and 100,000 miles of ownership. Out-of-warranty battery replacements are estimated to cost between $4,400 and an unreasonable-sounding $17,600.

While maintenance is cheaper overall, EVs are more expensive for things like system failure and collision repairs. Minor fender-benders are expected when using any vehicle for business or otherwise. The final cost is highly dependent upon the make and model of the vehicle, but they’re generally more expensive than ICE vehicle repairs because parts aren’t as widely available.

Another thing to consider is the availability of repair. Finding authorized repair shops that handle EVs may be difficult, especially for less urbanized areas. While it is technically possible for businesses to perform DIY repairs, they do run the risk of voiding long-term warranties. Furthermore, proprietary parts like automated systems and computer-controlled functions need specialized attention.

Are EV vehicles worth it?

Reading through this article might discourage business owners from switching to electric vehicles due to the possible costs. However, we need to remember that EVs also present massive benefits in the long run. From maintenance costs to eliminating fuel expenses, an EV can help businesses save money throughout their operations in many ways.

Aside from tangible savings, EVs are also immensely beneficial for the environment. Zero-emission vehicles bring us closer to minimizing our carbon footprint and help avert the disastrous effects of climate change.

Additionally, more brand-centric businesses using EVs can attract more customers — and investors. Environment, Social, and Governance (ESG) investing is becoming increasingly popular as the world becomes more environmentally conscious.

At the end of the day, it is the business’s responsibility to weigh the potential costs of switching to electric vehicles against their inherent benefits before considering the switch.

US Electric Vehicle Sales still have a lot to do with China