Electric Vehicles: A luxury worth having?

Electric Vehicles: A luxury worth having?

By Gerald Arends and Swati Johri

The 2015 Bridgestone World Solar Challenge will take place from 18 to 25 October 2015. Pegasus Legal will use this opportunity to look at a number of topics at the interface of transport and renewable energy.

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Pegasus Legal is a very proud supporter of Clenergy TeamArrow, Australia’s premier and Brisbane-based solar car racing team. Clenergy TeamArrow was the highest ranked Australian finisher in the last 2013 Bridgestone World Solar Challenge and has completed the 2015 Abu Dhabi Solar Challenge where it won the mechanical design award.


For many years hybrid vehicles, most of all the Toyota Prius, have been a familiar sight on our streets. Increasingly, plug-in hybrid vehicles (which combine a combustion engine and an electric drive train) and fully electric vehicles are becoming available. 

The first wave of hybrid vehicles were typically based on regenerative breaking technology, where breaking energy is harnessed and stored in a battery and used to power the power-hungry start-up of vehicles. 

Electric vehicles (including plug-in hybrid vehicles) are charged out of an external source, typically grid-connected power. These vehicles have been touted as a desirable complement to the proliferation of roof-top solar, allowing solar home owners to charge their vehicle first (and very cheaply) before exporting any excess power to the grid. There have even been discussions that the combined storage capacity of electric vehicles connected to the grid (while charging and parking) could be utilised for grid support services. 

Electric vehicles provide benefits to their owners and society as a whole:  the cost of energy (namely electricity) required to drive the vehicle is only about 25 per cent. of the cost of fuel required for a car run on a combustion engine. In an urban society such as Australia’s, the range limitations of electric vehicles do not matter for the vast majority of car trips performed. Additionally, electric vehicles remove from the inner-cities a key source of pollution with COx, NOx, micro particulates and noise. 

Luxury car tax

A number of factors make electric vehicles more expensive than comparable conventional cars, such as the use of carbon fibre and, in particular, the battery system. This drives up the up-front cost of building the electric vehicle. If you explore the purchase of an electric vehicle you will wonder whether they are a luxury worth having. 

The term “luxury” provides the legal clue to a significant part of the cost of purchasing an electric vehicle. Due to their high upfront cost, many electric vehicles attract luxury car tax, imposing an additional 33 per cent. tax on the value of the car above the luxury car tax threshold. 

Are electric vehicles “fuel efficient”?

There is a luxury car tax limit (threshold) for ordinary cars and a higher limit for fuel efficient cars (set out below). In order to benefit from the “fuel efficient” status, it is necessary to pass tests to determine that the fuel consumption is below 7 litres of (conventional) fuel per 100 km. 

Under the rules governing the fuel consumption labelling, conventional combustion engine cars and plug-in hybrid vehicles with a combustion engine receive a fuel consumption labelling.  Fully electric vehicles on the other hand receive an energy consumption labelling.  Logically, the Australian government’s Green Vehicle Guide does not produce fuel consumption figures for purely electric vehicles. 

All this would suggest that electric vehicles do not benefit from the higher fuel efficient car limit.  However, in a 2010 private binding ruling, the ATO confirmed that in line with the legislative intent the higher fuel efficient car limit would apply to new fully electric vehicle. 

Source: ATO

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While we appreciate the outcome of the private binding ruling, no discussion is provided by the Commissioner dealing with the differentiation between fuel consumption and energy consumption that underpins the luxury car tax system which incorporates the motor vehicle standard system by reference.  Furthermore, a private binding ruling cannot be relied upon by third parties nor by the same party in relation to subsequent transactions which were not the subject matter of the binding ruling – the ATO can change its view on the correct application of the law at any time. Significant uncertainty remains whether the fuel efficient car limit applies. 

Furthermore, the fuel-efficient car limit has not been indexed since the financial year 2010-11, whereas the threshold for other (i.e. not fuel-efficient) vehicles has benefitted from regular upward adjustments. This erodes the incentive the legislation originally created for fuel efficient cars.

Lifetime cost versus upfront cost

The more fundamental problem for treating electric vehicles in the same vein as other vehicles (albeit fuel-efficient ones) is that it ignores the differences in life-time cost of acquiring and running a car: 

  • a car with a combustion engine has a moderate cost on acquisition, but material fuel cost over its lifespan; and

  • a fully electric vehicle has a significantly higher cost on acquisition, but a significantly lower energy cost over its lifespan. 

The luxury car tax attaches to the upfront cost of acquiring a car. It therefore burdens electric vehicles more than conventional vehicles, although for environmental reasons (inner-city air pollution and climate change) the uptake of electric vehicles should not be stifled. 

What luxury?

At present, the high cost of electric vehicles is made even dearer by the application of luxury car tax. But is having electric vehicles a luxury – or is not having electric vehicles a luxury we cannot afford? 


Pegasus Legal is a boutique law firm with an exceptional level of expertise in the renewable energy sector. Our lawyers have worked on a large number of solar, biomass and wind projects in a wide range of countries, including more recently in Australia, Japan, the Philippines, Thailand, Malaysia, Qatar, Uzbekistan, South Africa and various European countries.  For further information please contact our Directors, Gerald Arends or Swati Johri.