Electric Vehicle and Evolution of New Financial Models
With the increasing demand and OEMs trying to achieve economies of scale, the price of electric vehicles would go down, and consequently the cost of insurance. Also with the governments promoting electric mobility over gasoline fueled automobiles to reduce carbon footprint and greenhouse gases, the insurance cost is anticipated to further fall by 2025. The insurance providers deem it as a low-risk vehicle when the vehicle is comprised of advanced safety driving assistance, crash avoidance technology, and other such features. Thus, it can be inferred that with driving assistance technology, the insurance value is expected to decline.
The average insurance for an electric car is $ 1472.17 as compared to $1018.14 for an internal combustion engine (ICE) vehicle or gasoline fueled automobile. The high cost of electric vehicles is the major factor for high insurance costs and a major reason for consumers not opting for electric vehicles.
With many major OEMs leasing the batteries of the electric vehicles, the insurance providers are also eliminating the batteries from the cost of insurance. This is reducing the direct impact on the consumers and ensuring a correct payout is issued by the insurance company. Furthermore, the cost of insurance for electric vehicles would compete with that of ICE vehicles post-2025 after the reduction in prices of vehicles is visible.
Electric vehicle manufacturers are trying to penetrate the finance industry by offering personal leasing options to the consumers directly and by offering direct incentives for covering insurance, road taxes, scheduled maintenance of the vehicle, and so on.
Key players such as Renault and Nissan are selling the electric vehicles without including the battery units, which reduces the cost of the electric vehicles drastically in terms of insurance, taxes, interest paid on EMIs, and so on. This would require the consumer to lease the battery unit externally, which is economical and cost-efficient.
The relatively high cost of the electric vehicles is primarily due to the low resale value as batteries need to be replaced in the long term. Also, with many new models being launched with higher efficiency at lower cost and incentives being provided by the governments and OEMs, dealers, consumers are leasing electric vehicles rather than buying the product upfront.
Major OEMs are trying to boost the electric vehicle sales initially by venturing with cab aggregators. For example, to increase the operational efficiency, companies such as Mahindra in India, where the current penetration is very low, has tied up with Uber and Ola to lease electric vehicles.
Since the internal structure of the electric vehicles is different than the ICE vehicles or gasoline fueled automobiles and with many major developments taking place in the Electric mobility industry, the insurance companies are designing the insurance structure in order to provide proper and cost-efficient payout structures.
To integrate new technologies in the electric vehicles and to achieve success in terms of standardization and interoperability, manufacturers or suppliers need to adopt a collaborative business model. The resale value of the vehicle is playing a huge role in determining whether a consumers opts for an ownership model or leasing model.