TITLE:
The TCO Paradox—A Key Problem in the Diffusion of Energy Efficient Vehicles?
AUTHORS:
Jens Hagman, Sofia Ritzén, Jenny Janhager Stier
KEYWORDS:
Total Cost of Ownership, Energy Paradox, Vehicle Choice
JOURNAL NAME:
American Journal of Industrial and Business Management,
Vol.7 No.12,
December
11,
2017
ABSTRACT: The aim of this paper is to explore how mainstream
vehicle buyers perceive and apply Total Cost of Ownership in their vehicle
choice process. All else equal, rational consumers ought to evaluate Total Cost
of Ownership in order to acquire the real cost of owning a particular vehicle
under consideration, unless bounded rationality is affecting their behavior. The
results reveal that vehicle buyers generally are capable of understanding the
relative size of individual costs that make up vehicle Total Cost of Ownership
but fail to evaluate and apply multiple costs in their vehicle purchase
process. Regression analysis exposes that income, educational level, stated
importance of Total Cost of Ownership and the number of vehicles in the choice
set have a positive association with the degree that consumers conduct an
evaluation of vehicle Total Cost of Ownership. Failure to consider Total Cost
of Ownership can lead to uneconomic vehicle choices, which is here labeled as
the TCO
paradox. This could
have an especially negative effect on the diffusion of battery electric
vehicles, which require a more detailed cost analysis in order to extract its
low operating cost structure.