Is it necessary to have TCO 2.0?
In the realm of corporate fleet management, the concept of Total Cost of Ownership (TCO) has become a significant line item in the modern Total Cost of Ownership framework. This model, which traditionally encompasses financing, service costs, and fuel or energy expenses, is undergoing a transformation due to the evolving nature of fleet operations.
One of the challenges faced by this evolution is the discrepancy between Profit & Loss (P&L) reporting and TCO-based budgeting. As TCO is not a fixed or universal standard, it is interpreted and implemented differently by companies, leading to a growing gap between the two.
The increasing complexity and volatility of TCO has sparked a debate on whether a leaner, more simplified model would offer a more stable and transparent basis for financial assessment. This leaner TCO model focuses on capital cost, interest, service fees, and fuel or energy consumption, providing a more straightforward approach to cost analysis.
However, this simplified model does not capture the full spectrum of tax benefits or ancillary costs. For instance, the variability of tax-based incentives, such as lease deductibility or preferential tax treatment for Electric Vehicles (EVs), are often time-bound and jurisdiction-specific. This has led to a weakening of the once-compelling fiscal rationale for EV adoption in countries like Germany and the Netherlands due to policy changes and diminishing tax advantages.
The question of whether charging infrastructure costs should be attributed at the individual vehicle level or treated as an overhead cost associated with the broader mobility program continues to be a point of contention. The rationale for this separation lies in the battery's functional longevity and intrinsic material worth, as well as potential second-life battery applications.
In response to these challenges, the industry may soon adopt a bifurcated TCO approach, distinguishing between short-term vehicle depreciation and longer-term battery utility. This approach would provide a more accurate representation of the costs associated with each component of the vehicle.
Despite the lack of specific companies identified as implementing a simplified Total Cost of Ownership (TCO) modeling approach in recent times, the trend of separating the TCO of an electric vehicle's chassis from that of its battery is emerging. This bifurcated approach is consistent, auditable, and aligned with traditional P&L financial reporting standards.
As TCO frameworks continue to evolve, telematics and other technology solutions present a similar dilemma regarding their inclusion in the TCO framework. The industry will need to navigate these challenges to ensure that their TCO models remain accurate, transparent, and fit for purpose in the face of technological advancements and changing economic conditions.
