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Diffusion of Battery Electric Vehicles

The Role of Total Cost of Ownership

Time: Fri 2020-09-11 10.00

Location:, Stockholm (English)

Subject area: Machine Design

Doctoral student: Jens Hagman , Integrerad produktutveckling

Opponent: Associate Professor Johan Jansson,

Supervisor: Professor Sofia Ritzèn, Integrerad produktutveckling


Due to their high efficiency, zero tailpipe emissions and possibilities of using renewable electricity, Battery Electric Vehicles (BEVs) have been proposed as a way to alleviate the negative consequences of transport. However, as with other energy-efficient innovations market uptake or diffusion of BEVs have so far been limited. Three main barriers for BEV diffusion have been identified in the literature: limited range, lack of charging and high purchase price. Range and charging have been extensively studied. The high purchase price and other ownership costs of BEVs has not received the same amount of attention. The focus of this thesis is to go beyond the purchase price of BEVs, that in general is higher than for Internal Combustion Engine Vehicles (ICEVs). This thesis will center on costs; as the low running cost of BEVs validates further investigations regarding the Total Cost of Ownership (TCO) compared to ICEVs. The aim of this thesis is therefore to investigate the TCO of BEVs for both private and professional use-cases relative to the TCO of ICEVs, and further, to explore to which degree TCO is incorporated in the vehicle choice process. The main theoretical underpinnings of this thesis are innovation diffusion theory, a set of theories that describes the process by which an innovation is adopted among the members of a social system. In a narrower consumer behavior setting, rational choice and the emerging literature in behavior economics also forms an important theoretical basis for this thesis. The method choices in the four studies included in this thesis reflects the complex socio-technical system that BEVs inhabits. A mix of quantitative (e.g. surveys and driving data) and qualitative (interviews) methods have been used.

The results of Total Cost of Ownership (TCO) computations in this thesis indicate that the actual cost of BEVs can be lower than for equivalent ICEVs. This has been validated for different contexts and use-cases in both private and professional settings. However, the actual TCO of BEVs is likely to have a small influence on vehicle choice. The results indicate that only a small minority (4 %) of mainstream vehicle buyers conducted a complete TCO analysis and that the majority (58 %) did not calculate any ownerships costs into their vehicle choice process. In addition, vehicle buyers have a poor understanding of on-going vehicle ownership costs of their present vehicle. Thus, they are uninformed about vehicle costs in general and of TCO in particular. Calculating TCO is a challenging task for consumers, requiring both cognitive efforts and time. It can be suspected that vehicle buyers instead use purchase price as a proxy for TCO. Approximation of costs through purchase price could yield significant overestimation in the cost of owning and operating a BEV. This thesis argues that the market introduction of BEVs requires a new approach to evaluate vehicle costs among the stakeholders involved. The relationship between high effort costs and unknown ownership cost is radically altered due to the low ownership costs of BEVs. The potential rewards of being attentive to TCO are thus larger in the case of BEVs compared to ICEVs. Several aspects have been found to correlate to being more TCO attentive: higher income, higher educational level, having a larger comparison set of vehicles and increased stated importance of TCO in vehicle choice. However, vehicle buyers receive little assistance from vehicle

salespeople in estimating TCO of BEVs. Vehicle salespeople often focus on purchase price instead of taking the time to estimate TCO. Lower financial incentives for selling BEVs could be an underlying cause for vehicle salespeople not to emphasize the potential cost superiorities of BEVs in relation to ICEVs. In addition, the results allude that additional barriers related to BEV diffusion remains important. This is exemplified in the professional use-case of taxis that was investigated in this thesis, where range and charging limitations of BEVs negatively affected work conditions.

Four main conclusions can be drawn based on the results of this thesis: BEVs can be TCO competitive with ICEVs, TCO is rarely applied in the vehicle choice process, the market introduction of BEVs requires a new approach to evaluate vehicle costs among the stakeholders involved, and that improved understanding and application of vehicle TCO would improve the diffusion outlook of BEVs by improving their relative advantage. Based on these conclusions it is recommend that industry and public policy address the apparent misalignment between perceived and actual TCO of BEVs. This can be done by: improving knowledge of TCO among vehicle buyers, creating a comprehensive yet simple to use TCO computational tool and increasing the financial incentives of selling BEVs for vehicle salespeople.