Research carried out by the insurer LV= finds that while electric cars are more expensive to buy, that drivers can save money if they cover around 12,000 miles a year.
Lower running costs mean that electric cars can save drivers thousands of pounds over a seven-year period, despite their higher purchase or lease prices.
Petrol and diesel vehicles are cheaper to buy (£26,464 on average), while electric cars offer longer-term savings despite their higher average cost (£33,500 on average).
LV= looked at three electric cars: the Nissan Leaf, Volkswagen ID.3, and the MG ZS EV, and found that they work out cheaper than similar conventional vehicles, when bought outright, bought through personal contract plans, or leased for four years.
Drivers will save the most by buying the MG ZS EV, an SUV that will means savings of £13,316 on an outright purchase over seven years, or £2,320 savings on a standard PCP, or £5,772 savings through a four-year lease.
While the initial purchase price can seem intimidating, once the monthly costs are broken down, it can become clear that an electric car can provide great value over the ownership period.
However, this particular research was based on drivers doing 12,000 miles a year, which is significantly above the current average of 7,400 miles.
Lockdowns have also meant that for many drivers their current annual mileage will be lower than normal. And for those working from home, savings from electric cars could be harder to achieve.
The research found that electric cars cost on average £1,304 a year to run, while conventional cars cost £2,610 a year to run. That means saving £1,306 a year on running costs with an electric car.
Electric cars require less maintenance, and are expected to have a longer lifespan, despite battery performance degrading very gradually over time. However, the main saving is fuel. Drivers save £900 a year (over 12,00 miles), which is based on the electric car being charged at home most of the time, for a cost of about £400 a year, with another £100 for more expensive public charging. While the average annual cost for petrol or diesel is £1,435 for the same distance.
Maintenance bills for electric cars are priced at £384 on average, compared to £657 for petrol and diesel.
There is also the belief that electric cars will become cheaper over the coming years, which could mean bigger savings for drivers in the future too.
Comparing similar priced cars
In terms of running costs, if we compare an all-electric BMWi3 (£29,570) with a petrol BMW 318i (£29,600), the electric i3 costs 3.7p per mile, while the petrol 318i costs 14.2p per mile. So, while EVs, in general, are more expensive to buy, which takes time to offset the premium, if you choose to buy an all-electric at the same kind of price you had in mind for a conventional petrol or diesel, then you will save a lot of money in running costs, right from the start.
However, in terms of Total Cost of Ownership (TCO) the figures become slightly more balanced, but the i3 still comes out cheaper. The i3 requires a home charger (£354), but doesn’t incur any tax payment, has slightly higher insurance (£1,089) and a roughly equivalent cost for servicing and tyres (£565) over three years of ownership, covering an average of 12,000 miles per year.
While the 318i owned over the same period and mileage incurs tax (£445) but has slightly lower insurance (£824) and just slightly higher costs for servicing and tyres (£615).
The i3 has a loss of value of £16,707 over the three years, while the 318i has a loss of value of £15,066, which is lower, but roughly equivalent.
With all costs factored in the electric model costs 67p per mile, while the petrol model of roughly the same upfront cost, costs 74p per mile.
If the driver did 10,000 miles per year, the cost saving of the i3 of 7p per mile (with all other costs factored in), would be £700 a year, which over 3 years would be £2100, or over 5 years would be £3,500.
Comparing the same model
Researchers compared the petrol and electric versions of the Peugeot 2008, which costs £24,115 for the petrol (Active) PureTech 130 EAT8, compared to £30,730 for the electric e-2008.
The three-year running costs, which include fuel, tax and service, would be £2,003 for the e-2008, while the 2008 (Active) Puretech 130 would cost £4,176. This is a £2,173 saving for the electric version, but means when driving an average amount of miles per year (7,400) that it would take eight years to make up the higher upfront cost. However, if you do more than average miles, then the savings benefits come into play sooner.
Two smaller Peugeot models, the electric e-208 and petrol 208 (Allure) Puretech 130 EAT8 cost £27,875 and £22,210 respectively, with the electric option taking six years to make up the price difference. Or again, sooner, if you drive above average miles.
Electric cars and residual value
While the overall savings of all-electric cars may take several years if you buy outright (in lease deals or similar, the savings will be there from the start), another key element to consider in terms of cost of car and overall savings, is residual value of an all-electric, compared to a conventional petrol and diesel.
Residual values for electric vehicles are becoming stronger, and perhaps more desirable than equivalent petrol and diesel cars, as electric cars have become better in their range and capability, and as the UK slowly transitions to electric driving, which is increasing the market for second-hand electric cars and residual values.
Electric cars are now holding their value slightly better than petrol and diesel cars, and this may be set to continue as conventional petrol and diesel cars become the less conventional choice as the government shifts the country towards electric driving.
Company car and business savings
Choosing an electric car as a company car can be a great way to save money. The benefits of choosing an EV compared to a conventional petrol or diesel are that Benefit in Kind (BIK) tax is just 1% in 2021/22, and this will move to 2% in 2022/23 on all-electric cars. While a petrol or diesel could incur 27% and 29% respectively.
If an electric car is used for business you may be able to claim a capital allowance against the purchase. If an EV is purchased on hire purchase agreement, a business would be able to claim 100% capital allowances, for example.
And if you drive an electric car for business and can claim back on pence per mile, you may charge your electric car at home for around 3p per mile, but may be able to claim back 45p per mile, or whatever your employer offers, which could offer immense savings.
Conclusion
In the long run electric cars are cheaper overall than petrol due to lower fuel and maintenance costs, but the initial cost difference can take many years to make up, if you buy outright.
If you drive above average miles each year, such as 12,000 miles, then you will save money overall. If you drive an average amount of miles, such as 7,400, the savings will be less clear, but residual value of all-electric should be considered.
And if you only drive a small amount of miles per year, below 7,400, then it might not be cost-effective overall, currently, to buy an all-electric, and if you’re doing it for economy rather than ecology, then you may wish to look at hybrids instead, that offer a lower entry price.
But for those who drive an average amount of miles or more, then all-electric offers the most amount of money saving. And if you choose to get your next car through a lease deal, then over the length of the agreement you are likely to save money overall, as an MG ZS EV saved £5,772 over a four-year lease, meaning other choices on more expensive alternatives will offer less savings, but still perhaps the equivalent of £1000 a year.
Explore affordable electric cars
If you’re looking for an affordable electric car to enjoy the benefits of low running costs, then take a look at our page of best value electric cars or at our recent guide on best electric cars for under £300 a month, for five great choices. These give good examples of how a low monthly cost can be coupled with extremely low running costs, for great overall savings.
Find your perfect car
Use our EV finder to input your needs and preferences, to be offered a list of choices that suit the number of miles you drive per year, and the sort of car you want. From all-electric, to plug-in hybrid, self-charging hybrid, and mild hybrid. So you can find the car that’s right for you.
