CASE STUDY: Volvo’s switch to whole life cost model sees electric vehicle popularity soar

As one the world’s leading suppliers of commercial transport and infrastructure solutions, Volvo has more than 2,000 employees and operates around 450 company cars in the UK. For the last five years, it has worked with Arval on a sole supplier basis to provide a range of solutions, including full fleet management outsourcing, vehicle funding, personal contract hire, consultancy, and telematics.

The Challenge

Volvo’s existing company car policy was long-established with choice lists based on lease rates, offering petrol and diesel models from Volvo and Renault.

HR director Danny Nussbaum explained: “Over a number of years, it became increasingly clear we would have to move away from fossil fuel company cars towards electric vehicles (EVs) and plug-in hybrid electric vehicles (PHEVs), in line with general electrification uptake.”

“There has also been growing interest from our drivers in EVs and PHEVs, both from an environmental point of view and to minimise their benefit in kind taxation. So our company car policy needed a structural rethink to take account of electrification, especially from the point of view of choice lists and fuel reimbursement."

The Solution

Arval’s consultancy team looked at ways in which Volvo’s fleet objectives could be met, then recommended a number of important changes. The most significant of these was to rethink the whole approach to choice lists using a whole life cost (WLC) methodology, as opposed to lease costs, in order to include EVs and PHEVs.

Arval’s Corporate Business Manager, Steve Nixon said: “It can be very problematic to integrate electric and fossil fuel vehicles on the same choice lists using lease costs. The issue is that leases tend to be low for petrol and diesel cars, while running costs are higher, whereas EVs and PHEVs are more expensive to lease but comparatively economical to operate.

The answer is to adopt a WLC approach, providing a much improved overall picture of fleet running costs, including servicing, maintenance, National Insurance and business fuel.”

Arval consultant, Ben Edwards, drew up the new choice lists in consultation with Volvo and also worked on negotiating advantageous manufacturer terms. To broaden the range of EVs available, the Polestar brand was added. Further changes included the option for drivers to ‘trade-up’ from their grade, using a maximum of 20% of their company car allowance to enable them to secure their preferred model.

Results

Volvo’s new car orders are now dominated by electrified choices, splitting roughly two-thirds towards PHEVs and a third towards EVs.

Danny said: “There’s been a very strong reaction from drivers to the changes made including extra interest in the available model choices, as well as how each could potentially meet their different needs.

“The impact from a benefit in kind point of view has been dramatic. Some employees have managed to slash their monthly company car tax bill from £500 to £20-30 by making greener choices.

“The trade-up option is also proving popular, and there is a nice bonus in the shape of a new Arval programme called ‘1 EV = 1 Tree’, where a tree is planted for each electric vehicle we order.

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