Can policy close the cost gap? Total Cost of Ownership analysis of Electric, Hybrid, and Combustion Vehicles in São Paulo

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Purpose
The transition toward more sustainable transportation systems has intensified the debate around the economic viability of alternative vehicle technologies. Electric vehicles (EVs) and hybrid electric vehicles (HEVs) are frequently presented as environmentally preferable alternatives for internal combustion vehicles (ICVs), particularly in large urban centers where emissions and congestion represent critical challenges. However, consumer adoption depends not only on environmental considerations but also on the economic attractiveness of these technologies throughout their lifecycle. In this context, the concept of Total Cost of Ownership (TCO) offers a comprehensive approach to evaluate vehicle costs beyond the initial purchase price. This study aims to analyze how public policies influence the economic viability of EVs and HEVs compared to traditional combustion vehicles in the urban context of São Paulo, Brazil. Specifically, the research investigates how fiscal incentives, mobility regulations, and infrastructure-related policies affect the TCO of different vehicle technologies and, consequently, consumer decision-making regarding vehicle acquisition.
Design / Methodology
The research adopts essentially a quantitative approach, combining a literature analysis on relevant Total Cost of Ownership variables with secondary data collected from official institutions, automotive manufacturers, industry associations, and public policy documents. Based on the theoretical foundations proposed in previous TCO studies, a structured cost model was developed to calculate the total ownership cost of three representative vehicle models: one fully electric vehicle, one hybrid vehicle, and one internal combustion vehicle with comparable characteristics in terms of size, market positioning, and performance. The analysis incorporates both initial costs and operational costs throughout a defined ownership horizon. The cost components considered in the TCO equation include vehicle acquisition price, home charger installation (for EVs), fuel or electricity consumption, scheduled maintenance and repair, insurance, transportation alternatives required due to mobility restrictions, applicable taxes, estimated resale value, and battery replacement when relevant. The model also explicitly incorporates the effects of public policies implemented at federal, state, and municipal levels in Brazil, such as tax incentives, reductions in vehicle property taxes, exemptions from circulation restrictions, and policies related to charging infrastructure development. To assess the robustness of the results, the study simulates different usage scenarios, including variations in daily driving distance, energy prices, and tax structures.
Findings
The results indicate that the economic competitiveness of electric and hybrid vehicles strongly depends on both usage patterns and the structure of public policy incentives. Although electric vehicles typically present higher acquisition costs, their operational costs—particularly energy and maintenance—are significantly lower than those of internal combustion vehicles. In scenarios with higher daily mileage, the cost advantages of EVs become more pronounced, leading to lower long-term ownership costs compared to conventional vehicles. Hybrid vehicles generally occupy an intermediate position, benefiting from improved fuel efficiency while maintaining lower upfront costs than fully electric models. Public policies play a decisive role in shaping these outcomes. Incentives such as tax reductions, exemptions from vehicle circulation restrictions, and infrastructure support significantly reduce the total ownership cost of electrified vehicles. In the case of São Paulo, policies related to vehicle circulation and taxation contribute meaningfully to improving the economic attractiveness of electric and hybrid vehicles. However, the results also highlight that the financial viability of EVs remains sensitive to factors such as electricity prices, battery replacement costs, and the resale of vehicles over time.
Practical and Theoretical Implications
From a practical perspective, the findings provide evidence that well-designed public policies can substantially accelerate the economic competitiveness of cleaner vehicle technologies. By reducing specific key cost components within the TCO structure, policymakers can directly influence consumer adoption of sustainable mobility solutions. The study therefore contributes to policy discussions on sustainable urban mobility and energy transitions, suggesting that fiscal incentives, infrastructure investments, and regulatory measures should be integrated to promote electric mobility effectively. From a theoretical standpoint, the research expands the application of the TCO framework by incorporating public policy variables into the analysis of vehicle adoption decisions in emerging economies. It also highlights the importance of contextual factors—such as taxation systems, mobility regulations, and energy matrices—in shaping the economic feasibility of alternative transportation technologies. Overall, the study demonstrates that evaluating vehicle technologies solely through acquisition cost can lead to incomplete conclusions, and that the TCO approach provides a more accurate representation of the long-term economic implications of different mobility choices.