An optimal electric vehicle investment model for consumers using total cost of ownership: A real option approach

Saedaseul Moon and Deok-Joo Lee

Applied Energy, 2019, vol. 253, issue C, -

Abstract: Electric vehicles (EVs) are considered as an effective solution in achieving a low-carbon society. One of the major hurdles to EV diffusion is consumer ignorance. That is, consumers generally consider only the initial purchase price, not knowing the total life cycle cost in terms of long-term operational cost savings. The purpose of this study is to develop a consumer-based optimal electric vehicle investment model using total cost of ownership (TCO) which is the actual total cost paid by consumers from acquisition to disposal. Especially, this model includes the recent rapid technological advances in EVs and high volatility of oil prices. To quantify the economic value of the options of consumer's decision, we estimated the TCO of vehicles. Specifically, to provide practical results to consumers, we used the empirical data from the Korean automobile market to evaluate the economic value of TCO. Using the proposed investment model with empirical data, we derived an optimal decision path as a function of time, considering oil price uncertainty and technological advancements, by analyzing a binomial lattice model to identify the optimal timing of adoption. We found that even without subsidies, EVs are more cost-effective than internal combustion engine vehicles (ICEVs) at the current fuel price level, and are still cost-effective even if the current fuel price decreases 20% further in the Korean market. And as the fluctuation of fuel price becomes more stable, consumer preference to EV products should increase.

Keywords: Electric vehicles; Investment; Consumers; Real option; Total cost ownership (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0306261919311687
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:appene:v:253:y:2019:i:c:32

Ordering information: This journal article can be ordered from
http://www.elsevier.com/wps/find/journaldescription.cws_home/405891/bibliographic
http://www.elsevier. ... 405891/bibliographic

DOI: 10.1016/j.apenergy.2019.113494

Access Statistics for this article

Applied Energy is currently edited by J. Yan

More articles in Applied Energy from Elsevier
Bibliographic data for series maintained by Catherine Liu ().