Comparison of financial and external costs related to the use of selected electric and conventional passenger cars – the example of Poland

Many Polish cities have problems with air pollution and smog. There are many reasons for this, and one of them is emission from motor vehicles. Reducing these emissions is extremely difficult in view of the volume of transport and the number of cars registered in Poland constantly growing since 2000 [Trela 2017, Analysis...].

Admittedly, the European Union (EU) systematically introduces more rigorous exhaust emission standards (EURO), which results in a decrease in the total emission from road transport in the EU; but in order to enhance the efforts aimed at improving the state of the environment, the European Commission places more and more emphasis on replacing conventional vehicles with electric ones [Trela 2017, Electric...], thus implementing the provisions of the European strategy aimed at reducing emission from the transport sector [European Commission 2016]. The Polish government, within the framework of the striving for cleaner air, decided to develop the road transport towards electromobility. Both the document that is of a roadmap character [Electromobility… 2017] and the Act of 11th January 2018 [Ustawa… 2018] fit within the pan-European trend of supporting the electric road transport. These documents contain a large number of regulations that give certain preferences to owners of electric cars, while, at the same time, allowing for increasing the nuisance caused by the use of conventional vehicles (e.g. by giving consent to introducing so-called ‘clean transport zones’ which are inaccessible to most conventionally fuelled car).

Furthermore, the Act contains a roadmap for the development of the infrastructure for charging electric cars as well as a specification of the minimum percentages of zero-emission vehicles (in the meaning of the Act) in the fleets managed by the local government entities. These actions unequivocally demonstrate that the lawmakers want to strive towards the goal announced by the Prime Minister Morawiecki, specifying that there will be 1 million electric cars in Poland by 2025.

Electric cars do not emit pollution from burning fossil fuels during vehicle operation, but they need electric power. In the Polish energy sector where the largest share of energy comes from coal- and lignite-fired power plants, electric energy production causes emission of compounds very similar to those that are formed as a result of burning fuel in a combustion engine. Therefore, it is not obvious that each electric vehicle will be more environmentally friendly than each conventional vehicle.

Additionally, the result of such an analysis may be different for each country and will depend on the specificity of the energy sector. Furthermore, from the economic point of view, the choice of a particular option is advantageous when the sum total of private costs (loss of value and running costs) and external costs (costs of pollution) is the lowest. For the time being, the nominal loss of value of an electric car significantly exceeds the loss of value for a comparable conventional car, while lower running costs can be expected for an electric car. The purpose of the paper is to find an answer to the question, ‘Is there an economic justification for the efforts aimed at causing a sudden increase in the number of electric cars used in Poland, such as minimising the social costs related to operating vehicles?’

The following electric car models were included in the analysis:

BMW i3, Renault Zoe – small cars (B-segment)

The above models were chosen due to their popularity in Poland (BMW i3, Renault Zoe and Nissan Leaf) and advanced technology (Tesla models S and X), which justifies considering these two models as the benchmarks for electric cars in their class.

The above models were compared with car models of similar sizes and features, as well as possibly similar acceleration performance. In each vehicle segment, comparison was made among a car with an electric motor, one with a petrol engine and one with a diesel engine as well as a hybrid car, with annual mileages of 10k, 15k, 20k, 25k, 30k, 35k and 40k km (Table 1).

Electric power consumption for the cars was assumed based on the results of a test performed in July 2018 by the AUTOBEST

AUTOBEST organisation: http://autobest.org/first-european-independent-ev-real-range-test-press-release/ - accessed on 18.04.2019.

PB95 petrol price was assumed at PLN 4.78/L; diesel price was assumed at PLN 5.08/L

Based on the average retail prices of fuels in Poland – e-petrol (20.03.2019).

For the calculations, the following were assumed:

for segments B and C –

vehicles with average annual mileages not higher than 10k km would be charged at home 90% of time and 10% at fast-charging stations;

External costs were calculated based on the Update of the Handbook on External Costs of Transport

Update of the Handbook on External Costs of Transport. Final Report, Ricardo-AEA, 2014.

The calculations were made for the first 3 years of vehicle operation, both from the point of view of the buyer of the vehicle (private costs) and from the point of view of the whole society, treating the social costs as the sum total of the private and the external costs.

It was assumed that the loss of value after 3 years of use with an average annual mileage of 30,000 km for each of the vehicles was 47% of the initial value. In calculations for other annual mileages, it was assumed that a difference of 1,000 km average annual mileage implies a difference of 0.6 percentage points of loss of value after 3 years (e.g. an average annual mileage of 20,000 km, a loss of value after 3 years of 41%; an average annual mileage of 40,000 km, a loss of value after 3 years of 53%)

Assumed based on the market value appraisals by Info-Ekspert and Eurotax.

Calculations of the private costs took into account the loss of value, the cost of fuel and the difference in servicing costs. It was assumed that the servicing costs (consumables and their replacement) are equal for hybrid, petrol and diesel cars. Lower costs were assumed for electric cars, which is the result of the use of a less complicated drivetrain and a differently designed braking system. For conventional vehicles, additional servicing costs were assumed according to the principle:

For B- and C-segment vehicles –

PLN 550 annually for each commenced 15k km of average annual mileage

Prices of the cars were assumed according to the official price lists of the brands. For the cars that are not available in the Polish market (Tesla), official prices were taken from the German market and converted at the rate specified by the Polish National Bank on 15.03.2019. The discount factor for the analysis was assumed at 4%.

Table 1 presents the results of the calculations of private and social costs depending on the average annual mileage. External costs are only presented for an average annual mileage of 10,000 km because it was assumed that they were directly proportional to the average annual mileage for each vehicle.

Based on the calculations, it can be noticed that electric cars have a lower adverse impact on the environment compared with hybrid cars and diesel- or petrol-fuelled cars (Figure 1).

Figure 1

Admittedly, the Tesla Model X generates higher external costs for each 10,000 km mileage than the hybrid models of the Yaris and Corolla; but taking into account the size, comfort and performance, these vehicles cannot be considered as comparable. In comparison with vehicles from the same segment, Tesla generates external costs that are lower by at least 37%.

It is, however, not the external costs but the private costs, as presented in Figure 2, that largely affect the choice of a particular model by the buyer.

Figure 2

These turn out to be the highest for electric cars in both the most popular segments in Poland, that is, B and C. In the E- and SUV-segments, the lowest private costs are associated with hybrid cars; but in both cases, these models have significantly inferior performance than the other comparable models. These vehicles were taken for comparison because hybrid vehicles with performance values comparable to that of Tesla in these segments are not offered in the European market.

The electric vehicles in these two segments turn out to be unequivocally cheaper than diesel-powered vehicles. When compared with petrol engine vehicles in the SUV-segment, the electric model turns out to be more expensive for each mileage, while in the E-segment, the electric model is cheaper than the petrol one, beginning for the average annual mileage of 20,000 km and higher. The private cost, although essential in the buyer’s decision-making process, is not a measure of cost-effectiveness from the point of view of the entire society. In this case, the social cost is essential, as it also takes into account the costs related to the emission generated as a result of vehicle operation. Social costs (Figure 3) present a highly similar view of cost-effectiveness to that of private costs, which arises from the fact that since all the vehicles included in the analysis meet the EURO 6 emission standard, the emission related to their operation is low, and therefore, the external costs are of little significance compared with the private costs.

Figure 3

When analysing the social costs, it is worth stating that although the external costs are significantly lower for electric cars, it is still difficult to find an economic justification for using this type of vehicles, especially in the case of the cars that are most popular in Poland, that is, those from the B- and C-segments. In the E-segment, the choice of the electric model may be justified in comparison with the diesel-powered model for each of the mileages included in the analysis, whereas in comparison to the petrol model, it is only true for average annual mileages of 20,000 and above. In the SUV-segment, the electric model was found to be a better choice, from the social point, than the diesel model. The petrol model turned out to be more justified in terms of cost-effectiveness for each of the mileages analysed.

The analysis has demonstrated that in view of the current market situation in Poland and the structure of the power sector, there is no economic rationale for putting efforts into encouraging a rapid development of the electric car market, especially in the most popular segments, that is, B and C.

At the same time, is should be noted that in the case of some luxury models, the choice of an electric car might be economically justified. Additionally, it should be borne in mind that the benefits from operating such a vehicle may increase along with the increase in the average annual mileage. Given that a large percentage of customers who choose vehicles from this segment are those who use their vehicles intensively, with high annual mileages, this could be an argument in favour of developing the electric car market within this segment. However, the high average annual mileage is also the biggest obstacle to the development. The range of electric cars necessitates frequent charging, and this involves huge inconvenience resulting, above all, from the insufficient charging infrastructure in Poland (currently, there are four Tesla Superchargers in Poland

https://www.tesla.com/de_DE/findus/list/superchargers/Poland?redirect=no – accessed on 13.05.2019.

Extending the period of operation of an electric car would mean that the benefits resulting from the lower costs of energy needed to power the car will increase. Thus, a calculation made for vehicles operated longer than 3 years may give different results. It should, however, be remembered that while the benefits from the use of electric power and lower use of consumables will be accumulated over time, it will probably be necessary to replace the batteries during the lifetime of the vehicle. The current prices of battery packs are at such a high level that they may exceed the forecast price of a 7- or 8-year-old electric car, especially from the B- and C-segments. Currently, there are no reliable data concerning the durability of batteries fitted in the particular models; likewise, it is impossible to determine the price of such batteries in the future. This prevents an analysis for the entire expected lifetime of an electric vehicle.

Although electric cars are undoubtedly the nearest further of the automotive industry, at the moment, they are not an economically justified solution in Poland. The most popular cars (B- and C-segments), for which an important factor affecting the choice is the running cost, turn out to be the most expensive for the user and the society in their electric versions for the assumptions made. The limited usefulness of such vehicles due to the small range, long charging time and very poorly developed charging infrastructure in Poland are added to the above factor, and it turns out that the purchase of such a vehicle can only be justified in special circumstances, for example, for the cars used as taxis or purchased for marketing purposes.

Purchasing cars from the E- and SUV-segments may be economically justified in certain conditions, but the extremely poorly developed charging infrastructure in Poland practically nullifies the usefulness of such a car as a family and/or a business one for a vast majority of users. This is, however, a special situation because it concerns vehicles of the Tesla brand, which is identified with the most advanced technologies related to electric vehicle propulsion and the most advanced vehicle automation systems. Taking further into consideration the fact that the prices of cars from this segment are so high relative to the Polish economic reality that the customers are typically wealthy people, the economic aspects as well as those related to the usefulness become less essential in this case than the very desire for having a vehicle of this kind. In Poland, Tesla is a manifestation of luxury combined with innovation and modernity, and such a perception of the vehicle owner compensates for the disadvantages related to the lack of a charging infrastructure.

Regardless, however, of the type of electric vehicle and the type of energy system in a particular country, electric vehicles do not emit any pollutants from burning fuel in the engine. Emission of PM as a result of the mechanical abrasion of brake linings is lower than in conventional cars, while emission from tyre or road surface wear, as well as secondary emission are identical as for the combustion equivalents. Thus, electric cars will always emit smaller amounts of pollutants on the spot than conventional vehicles. This characteristic may be of particular importance in the centres of Polish cities where the air quality very frequently exceeds the permissible limits.