Total Cost of Ownership of a lithium battery for industrial machinery: initial price vs cost over the long term
27/02/2024 – All about lithium batteries, Blog, Lithium batteries for electric vehicles, Lithium batteries for industry
When you decide to buy a product, the price on the tag may be the first significant deterrent to making the purchase.
But ask yourself: How much does that product really cost? If we take different goods into account, it is clear that the evaluation will vary. Yet, answering the question solely in terms of cost would be too narrow.
This is where a crucial cost assessment metric, that considers an investment’s overall economic value rather than just its original cost, comes into play. This metric is the TCO, or Total Cost of Ownership.
Analysis of the Total Cost of Ownership provides a clear and thorough understanding of the long-term financial effects that the buyer of a certain product faces. This calculation gives an exhaustive overall view of the cost of owning a product in addition to accounting for the initial price.
Let us look at how calculating the TCO can help you make more informed decisions and avoid seemingly better options, especially when it comes to electrifying your industrial machinery and vehicles.
The shift to more sustainable technologies is an incumbent imperative in national European policies. As a result, industrial machinery and vehicle manufacturers are increasingly faced with two main options to comply with the new green regulations.
Some manufacturers choose to convert their internal combustion engine (ICE) vehicles into electrical vehicles, pursuing a more efficient, low-emission alternative. ICE vehicles are, in fact, becoming obsolete, especially at a legislative level. The European Green Deal’s 2050 climate neutrality goals and the increasing focus on environmental sustainability call for a gradual shift away from these traditional technologies. This necessitates a move towards more advanced ecological solutions for industrial machinery and vehicles.
Other manufacturers had already approached electrification using conventional lead-acid batteries and many of them understood that lithium was the most efficient and appropriate chemistry for their machines and vehicles and began the process of converting to new technologies early on.
How much do costs influence these changes? In both situations, it is critical to make well-considered purchase decisions that consider the long-term financial advantages of lithium electrification from the very beginning. That makes the concept of Total Cost of Ownership very relevant.
There is no denying that the cost of electrifying your vehicles may cause you to think it is an unwise investment. At the moment, the primary difference in price between a lithium battery-powered vehicle and either an ICE vehicle or a vehicle powered by a lead-acid battery is actually the cost of the battery.
However, it is imperative you set aside your concerns about the purchasing price and adopt a more all-encompassing strategy that takes the battery’s entire useful life into account. A detailed comparison based on the total cost of ownership is the only method to determine the true financial advantages of choosing lithium batteries.
A number of crucial factors need to be given careful consideration in order to evaluate the financial potential that technological transition offers. In fact, to determine the total cost of ownership (TCO) of an industrial vehicle, you need to consider a variety of fixed and variable expenses across the life of the vehicle, including:
We have been producing industrial lithium batteries for 12 years and with that experience we have assisted a large number of producers from different industries in making the switch to lithium.
Here is a real-life example of how we helped a customer working in the industrial EV space with two challenges: we guided him through the process of retrofitting its lead battery-powered vehicles and helped electrify new vehicles using Flash Battery’s lithium batteries.
The TCO analysis for the same vehicle powered by diesel, lead acid batteries or lithium batteries is shown in the following graph, which covers a 10-year period and includes the vehicle’s initial cost, maintenance costs and energy balance/fuel costs.
The factors that guided our analysis were the 3 key parameters used to compare the vehicle’s total TCO in the given time period: the purchase price, fuel costs/energy balance, and maintenance costs.
The purchase price is the initial investment, in other words, the amount the producer has to spend when it decides to purchase an ICE vehicle, lead battery or lithium battery. As mentioned earlier, a lithium battery requires a higher initial outlay of funds than an ICE vehicle and its electric lead battery-powered alternative.
Nonetheless, the graph indicates that when maintenance and fuel costs/energy balance are taken into account, the initial investment is recouped within the given time frame.
The amount that maintenance adds to the total cost of ownership is readily apparent. Vehicles using lithium batteries have substantially lower operating costs. Specifically, an electric powertrain’s lower technical complexity simplifies maintenance. Switching to lithium-powered vehicles, in fact, avoids the need for regular replacement of an entire set of components and moving parts in ICE vehicles due to wear and tear.
In the case of lead-acid batteries, routine maintenance, which includes water refills, maintaining the filling circuit, and keeping parts and terminal poles free of corrosion, is one of the highest costs manufacturers have to bear.
Other costs related to lead-acid batteries are also included:
All these extra expenses are eliminated with lithium batteries, which in fact don’t demand charging facilities, don’t produce emissions and don’t require any type of upfront maintenance.
Electricity is currently considered more economical than diesel for a number of reasons. To begin with, electric vehicles are more energy efficient than ICE vehicles (80% vs 30%).
In addition, electricity prices are typically less volatile and more stable than the price of oil and its derivatives. Compared to fossil fuels, electricity is less vulnerable to changes in the price of raw materials.
LET’S COMPARE LEAD-ACID BATTERIES VS LITHIUM BATTERIES
A lead battery’s useful life is about 4 times shorter than a lithium battery’s (1,000 charging cycles vs > 3,500 cycles). Put another way, as lead batteries age, their ability to supply energy diminishes and they need to be replaced more frequently. Additionally, lead batteries have a low charging efficiency, only charging at a rate of roughly 75% as opposed to 96% for lithium batteries.
Lead batteries also take longer to charge, typically 6 to 8 hours for a full charge. In contrast, lithium batteries support partial charging and fast charging, allowing them to be charged multiple times during the day and in a shorter amount of time. A dead lead-acid battery in the vehicle has to be changed out with a replacement and left in a special room to charge after 8 hours of use.
Keep in mind that lead batteries are heavier and bulkier than lithium batteries. This can significantly affect logistics because replacement operations demand time and are a potential source of risk for workers.
It goes without saying that these variables add to the overall operating costs of lead batteries.
The example amply illustrates that electrifying your industrial machinery or electric vehicles with lithium batteries is a financially sound choice. In fact, although adopting lithium batteries instead of lead batteries or internal combustion engines requires a larger initial investment, the Total Cost of Ownership analysis reveals a more advantageous bottom line over time.
This makes TCO analysis a highly useful tool when weighing your options prior to making an investment. The savings from lower maintenance costs plus increased operating efficiency and compliance with stringent green standards all contribute to the conclusion that switching your industrial machinery and vehicles to electric is a critical step towardslong-term sustainability, both environmental and economic.
“Total Cost of Ownership (TCO) is becoming an important lever and will continue to be a vital fast-track tool in the transition to electric for an increasing number of industries. By providing a clear and transparent view of the financial benefits of switching to electric, the TCO serves as a strategic tool for producers to make informed and conscious decisions, allowing for speedier migration to more sustainable solutions with a reduced environmental effect.”
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