Drivers face a hat-trick of rising electric car costs

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At a time when ministers are desperately pushing drivers to make the switch to electric cars to reach decarbonisation targets, the cost of buying and running one is becoming more expensive.

Consumer are facing a hat-trick of rising electric car costs in 2022, which threatens to dampen demand for these greener vehicles.

Higher energy costs have already seen a number of providers pull the plug for new customers on dedicated EV tariffs, and for some April’s energy price cap hike will make running an electric car between £150 and £200-a-year more expensive. 

The raised cap comes at a time when the Government has slashed grants designed to reduce the price of new zero-emission models and also intends to pull the homecharge scheme for many next month, meaning no financial support to have a charging device installed at a property. 

The combination means the cost of owning an electric car could be up to £2,050 more expensive than it was a year ago. But should this put you off making the switch?

1. Impact of Ofgem’s hiked energy price cap on home charging costs 

Additional cost: up to £200 a year

The energy price cap will rise in April by £693 from £1,277 to £1,971 per year for the average household on a default tariff paying via direct debit, it was announced earlier this month, which will ultimately push some household’s energy bills through the proverbial roof.

Surging gas prices have dominated the headlines on household bills, but electricity costs have also rocketed. 

Under the current price cap, electricity costs on average across the UK, 20.8p per kWh. Under the new price cap, this will rise 36 per cent to 28.34p per kWh from 1 April.

There is also currently a 24.88p per day standing charge cap, which will rise to 45.34p.

If you own an electric car and predominantly charge at home, you can be sure to see the cost of replenishing the battery increase as a result of Ofgem’s decision to raise the cap. However, it might not be as dramatic as you may have imagined. 

We’ve calculated that the additional cost per month to be between £12 and £16 for most Britons.

This is based on the energy consumption of an average electric car per mile, average annual mileage, a user charging entirely at home and the maximum rate of 28p per kilowatt hour that could be paid by someone on a standard variable rate tariff from April.

This takes into account that the latest Department for Transport figures say the average Briton is driving 6,800 miles a year – though this is for the year 2020, which saw traffic levels drop by a quarter.

Based on these factors, electric car owners will see their average charging costs rise by £12.38 per month, up from £37.13 to £49.50. That means an annual hike in electric car charging costs of £148.44, increasing from £445.56 a year to £594.

Yet, with the culling of all Covid restrictions from the end of February, average mileage is expected to rise closer to pre-pandemic levels nearing 8,000 miles per year. This will see the cost of replenishing an EVs batteries rise by just over £16 a month – or £200 a year. 

However, our calculation is very much a ‘worst-case scenario’. Many electric car owners may have a dedicated EV tariff, which offers them cheaper charging rates if they’re willing to tap into the grid at off-peak times.

Many EV owners may be able to access free charging at their work places or supermarket car parks, but will also pay to use public devices, especially the rising number at motorway services when completing longer journeys.

Motoring groups are urging drivers to shop around ahead of the cap rise in a couple of months.

RAC spokesman, Rod Dennis, says that any electric car owner on a standard variable rate tariff will ‘likely to be hit with some hefty increases’ from April, adding: ‘It can make a lot of sense to swap to one that’s specifically designed for EV drivers and offers cheaper overnight electricity prices.

‘Drivers need to brace themselves for rising prices from public charging networks too. We’ve already seen some increases announced by operators in recent months, and we’d expect to see more as we get further into 2022.’

There is one other major problem: EV tariffs are currently few and far between.

Many providers have pulled the availability of them in light of rising energy costs, with EDF and Octopus Energy the only energy companies we found to currently offer low fixed-rate EV tariffs, with lowest off-peak rates of 4.5p and 7.5p per kWh respectively – which is up to 23.5p per kWh less than the maximum electricity cost from April. 

Octopus told us it has no plans to discontinue or make any wholesale changes to its EV tariff following the price cap rise. Fiona Howarth, CEO of Octopus Electric Vehicles, says: ‘For many drivers, charging your car at home is as simple as charging your phone, and EV-specific energy tariffs like Octopus Go offer cheap, green energy in the middle of the night.

‘Filling your car on that overnight rate costs just £12 a month for a typical British driver – saving over £1,000 every year compared to old school petrol.’

Should it put you off switching? Annual Petrol bills are already £550-a-year more expensive than post-April EV charging costs 

While EV owners will see the cost of charging their cars rise from April, drivers of cars with internal combustion engines are also paying through the nose to refuel their motors. 

The price of petrol and diesel is already near record levels and with oil rising close to $100 per barrel, motorists can expect to see their fuel bills go up in the coming weeks.

Drivers of petrol cars are paying around 27p more for a litre of fuel than they were a year ago, with unleaded prices hitting 148p-a-litre over the weekend compared to the average February 2021 price of 121.5p. 

Based on a family car that returns 40 miles per gallon and the UK average mileage of 6,800 per annum, the difference in annual fuel bills compared to a year ago is already £205, rising from £939 to £1,144 – and that’s before pump prices are expected to increase again in the spring. 

Compare that with post-cap maximum charging bills for electric drivers of £594 and they are still £550 financially better off running an electric car over a comparable petrol model.

2. Grants designed to cut the price of EVs are slashed TWICE in just 9 months 

Additional cost: £1,500 compared to 12 months ago

With electric car costs still at a premium over their petrol and diesel equivalents, even the most resolute EV drum-beater can’t deny that upfront price remains one of the main – if not the biggest – hurdles preventing motorists from converting to cars with plugs en masse.

And it is especially the case now that the Government has wound down the grant for EV purchases. 

The Plug-in Car Grant, introduced back in 2011, was designed to help bridge the significant cost void between zero-emission vehicles and conventional petrol and diesel cars, originally offering to subsidise the price of a new battery model by up to £5,000.

However, the scheme over the years has gradually been scaled back, with the incentive trimmed in line with falling vehicle prices and growing demand – so claim MPs.

The latest cut to the scheme was announced in December. It now caps availability to only new EVs priced up to £32,000 and the grant amount is a measly £1,500. This was also the second instance of the grant being slashed in just nine months. A year ago, the grant was accessible for cars up to £50k and the amount was £3,000.

Currently, only around 20 electric models sold in the UK qualify for it, and these tend to be smaller cars with lower-capacity batteries and therefore relatively short ranges compared to market leaders.

It also means the grant is failing to offset the EV price premium that exists today, even at the most affordable end of the market.

Octopus EV’s Fiona Howarth says the difference in price between combustion and battery vehicles at the lower end of the market is around £5,000 – though the reality is that it’s closer to double that. 

For instance, there’s currently a £10,000 void between the lowest-spec petrol Volkswagen Golf and its similarly-sized ID.3 electric hatchback. The cheapest petrol Mini hatchback is £17,405, while the Electric variant starts at £27,000. Hyundai’s petrol Kona SUV is priced from £21,615 while the battery-only electric version is £28,950. A Vauxhall Corsa-e is £10,000 pricier than a Corsa ‘p’.

Quite simply, a £1,500 grant does little to bridge this substantial price gap. 

Motor industry insiders say the repeated cuts to the incentive have ‘sent out mixed messages’ at a time when MPs are pushing the transition to EVs ahead of the ban on sales on new petrol and diesel cars from 2030.

Jim Holder, editorial director at What Car?, said: ‘[The Government] wants to promote environmentally-friendly transport, yet it is reducing the incentive to do so at a time when electric cars are still more expensive to buy and represent a minority in the new car market.’

Mike Hawes, chief executive at the Society of Motor Manufacturers and Traders described the move as a ‘blow to customers looking to make the switch’ and that it ‘couldn’t come at a worse time’.

He told us: ‘Electric vehicle take-up is surging, thanks to an ever-growing model range and compelling offers, such that we expect almost one in four new cars registered this year to have a plug. Government and society ambitions, however, are even higher and we have to accelerate if we are to meet our net zero goals. 

‘Government can help by continuing to provide incentives that help all drivers make the switch, and investing in infrastructure so recharging is actually easier that refuelling. 

‘With energy prices increasing, the role of such measures are even more critical, so we should be looking at every way to ease the burden of increasing costs or risk stalling take-up at the worst possible time.’

Edmund King, president of the AA, called the decision ‘counterintuitive’ and said many drivers will have to work out if they can afford to buy an EV now that the grants and threshold have been cut.

He also suggests that MPs may be misinterpreting the level of demand for electric cars, which is likely being inflated by many registering them as part of generous salary sacrifice schemes, which currently mean benefit in kind taxation at just one per cent.  

Octopus EV boss, Fiona Howarth, added: ‘For now, grants are the simplest way to overcome the upfront cost hurdle. With so much opportunity for the countries that move early on EVs – keeping a strong grant incentive now will help kick EV uptake into top gear.’

Should it put you off switching? Combustion cars are getting more expensive – and there could be price parity this decade 

While drivers of petrol and diesel cars will point to the sky-high price of an EV, there’s no denying that petrol and diesel models are getting more expensive too, with manufacturers fitting more equipment and technology due to consumer demand for connectivity and safety requirements.

It means long gone are the days of most new superminis costing less than £13,000, with a bog-standard Vauxhall Corsa now starting at £17,000.

Lower benefit-in-kind tax rates and salary sacrifice schemes for electric cars have also made them far more appealing to drivers who can access them via their employers, which is one of the significant drivers of today’s EV boom in demand.

Strong second hand values also help those buying on finance, as limited depreciation lowers costs. 

And there is also compelling argument that EVs will become less expensive over time, though it will likely take years before they are cheaper than a basic petrol car.

A study last year by Bloomberg New Energy Finance predicted that an average electric family model will be cheaper to produce than an equivalent petrol car from 2027. Falling battery costs, new vehicle architectures, and dedicated production lines for EVs will make them cheaper to buy, even without grants, claims BNEF. 

3. Grants for charge point installations at homes scrapped from April

Additional cost: £350 for a charger installation

For motorists with off-street parking facilities at home, one perk of switching to an electric car has been the availability of the Electric Vehicle Homecharge Scheme (EVHS), a grant of £350 towards the installation of a chargepoint at a private property, which has been available since 2014.

However, the scheme is set to be axed for many people on the property ladder in a matter of weeks.   

From April 2022, the EVHS will no longer be open to homeowners who live in ‘single-unit’ properties such as bungalows and detached, semi-detached or terraced houses. Any installations will need to be completed by 31 March 2022 and a claim submitted by 30 April 2022. And many installers are now fully booked to the deadline date. 

The grant will remain available to homeowners who live in flats and anyone renting, though this will represent a much smaller pool of EV owners.   

Founder and CEO of dedicated EV site Electrifying.com, Ginny Buckley, says: ‘Despite the upfront cost being higher than petrol or diesel engined cars, electric vehicles are cheaper to run – especially if you can charge at home, which is why it’s so important to make the most of government support while you can.’ 

Should it put you off switching? Government is being urged to spend more on public charging infrastructure, not private

Apart from price – and range anxiety – the other predominant issue motorists have with switching to an EV is a lack of public charging infrastructure. This is especially a concern for those without off-street parking at their properties – which accounts for a third of homeowners in Britain.

An additional 7,600 new charger installations were added to the country’s network in the last 12 months, taking the total to 28,375 publicly-accessible plug-in points. 

Our number crunching last month revealed that for every one public charging device added to the network in 2021, there were 24 new electric cars registered. Experts have warned minister that this level of infrastructure growth is too slow ahead of the 2030 ban on new combustion motors.

Jamie Hamilton, automotive director and head of electric vehicles at Deloitte, says: ‘While new EV models are offering longer-lasting battery charges, the perceived lack of public charging infrastructure remains an issue.

‘Significant investment is required to avoid a scenario where EVs are only a realistic option for consumers with off-street parking.’ 

Richard Peberdy, UK head of automotive at KPMG, adds: ‘National and local government need to focus more on the role they can play in increasing the amount of public charging infrastructure – supporting business models to both deploy more chargers around the country and develop faster, sustainable, charging technology.’

A new campaign group, FairCharge, has called for the Chancellor to end the ‘illogical’ higher taxation for using on-street charging devices in Britain to reduce the cost of using the public network.

Currently, VAT on domestic electricity is charged at 5 per cent whereas those using public charge points ‘unfairly’ have to pay 20 per cent VAT.