By Mike Todd, CEO at Volkswagen Financial Services UK
As readers will already be well aware, households across the nation have been affected by the rise in energy costs and many people are tightening their budgets in anticipation of a challenging winter.
Given the current economic climate, the affordability of living sustainably is under the microscope and so it feels appropriate to focus this month’s column on the financial credentials of green travel.
Fuel prices have hit record highs in 2022, and despite falling prices, the RAC said at the start of September* that the average petrol price at the big four supermarkets – Tesco, Asda, Sainsbury's and Morrisons – was £1.69 per litre. Diesel was £1.83.
And the stark reality for many is that should fuel prices rise beyond what we saw earlier this year, everyday life starts to look very different.
Research from our data insights team found that 32% of the nation will be priced out of driving to work if petrol and diesel prices continue increasing as they have done this year.
Our data also highlighted a generational divide, with young people most affected by the fuel crisis. Six in 10 (63%) people aged 18 to 24 said they wouldn’t be able to afford the drive to work if prices keep inflating, with just 24% of 55 to 64 year olds stating this was the case.
Another aspect of the research showed that 35% of Brits would consider changing jobs if it allowed them to save on commuting costs, whilst a quarter (24%) would think about car sharing to get to work.
This is why the case for making the switch to electric is getting stronger all the time, and in fact, some of the anxieties that drivers may have – particularly around cost – are proving to be less of an issue as the EV revolution gathers pace.
For example, data from Volkswagen Financial Services UK’s EV-4-Me tool shows that average annual running costs for electric vehicles are approximately 70% of comparable petrol and diesel cars.
The tool has been designed for consumers to discover how an EV would fit into their lifestyle, with the headline results showing that drivers can expect average annual running costs of £722** when behind the wheel of an electric vehicle.
This is a whopping £1,933 cheaper than a comparable petrol car (£2,655 annual cost) and a substantial £1,636 less expensive than a diesel car (£2,358 annual cost).
These yearly running costs incorporate fuel, servicing and Vehicle Excise Duty and equate to monthly savings of £160 and £136 for petrol and diesel drivers respectively.
Whilst this research suggests the switch to electric is a cost effective move for consumers, EVs are currently in short supply due to a global semiconductor shortage. Therefore, alternative short-term options may include lower emission petrol and diesel vehicles with suitable fuel economy.
For instance, if you want to keep running costs to a minimum, the Volkswagen Tiguan may be a consideration.
Rising fuel costs are a serious issue and as our research highlights, many people are already making lifestyle changes to negate the higher prices. Drivers looking for a quick fix might want to consider low emissions ICE vehicles to help reduce running costs, but the fact that some will not be able to afford to drive to work if prices keep increasing is the shocking truth of the situation.
We know the cost of living crisis has heavily impacted consumer spending, but bigger ticket items such a new car may still be a necessity for many, so our role as a finance provider is to help consumers with these affordability issues.
Manufacturers and retailers have a greater duty than ever before to help educate consumers that the overall cost of an EV is not as big a barrier as once perceived, and in fact can be cheaper than most comparable petrol or diesel models.
This is why the transition to green travel is so important and why, at Volkswagen Financial Services UK, we continue to develop propositions to assist customers make the transition to electric cars. Practical tools like our EV-4-Me quiz are great ways of showcasing the savings that can be made by embracing greener and sustainable travel.
When looking solely at fuel costs, data from VWFS | Fleet’s fuel cost comparator illustrates that EV drivers using a home (7kW) charger can save £804 in annual fuel costs versus driving a petrol car, and £671 in savings compared with driving a diesel. These figures are based on driving 10,000 miles annually in a CUPRA Born***.
And despite recent falls in the price of petrol and diesel, the cost of charging at home is still good value for money compared to paying for either fuel.
Overall, the UK’s electric car market is in overdrive right now and the rapid acceleration of demand for electromobility is really exciting.
At Volkswagen Financial Services UK, we have seen annual finance cases for electric vehicles (BEV/PHEV/HEV) surge 1062% from July 2019 to July 2022. Furthermore, the percentage of electric vehicles that we’ve financed as a proportion of all vehicles in our parc has increased from 1% in 2019 to 7% this year.
This trend is all the more impressive considering the level of volatililty the automotive industry has faced in recent times, with EV sales increasing in spite of Brexit, the Covid-19 pandemic and the semiconductor shortage.
However, we haven’t yet reached a critical mass of BEV adoption, where we see the cost of acquiring an electric vehicle come down quickly. Affordability is a key issue that the wider industry is working hard to improve as we know that cost is influencing EV adoption.
But that in itself is a positive challenge as it means that consumers are already convinced of the benefits of going green, we just need to help customers have better access to these vehicles.
Note to editor:
*As of 4th September 2022: https://www.rac.co.uk/drive/advice/fuel-watch/
**EV-4-ME is designed to offer guidance on which fuel type might be most appropriate for you, based on your answers to the questions provided. It should not be relied upon solely to inform your buying decision. The figure of £722 is based on a vehicle budget of up to £30,000, driving fewer than 15,000 miles annually and up to 150 miles daily, and does not take into account the London Congestion Charge.