Working Paper

Total cost of ownership comparison for electric two-wheelers in Vietnam

Mopeds and motorcycles (known as two-wheeler vehicles, or 2Ws) are popular in Vietnam, but they worsen the country’s air quality and increase greenhouse gas (GHG) emissions. Transitioning from petrol-powered 2Ws to electric two-wheelers (E2Ws) is essential, especially in big cities where the conventional internal combustion engine two-wheeler vehicle (ICE-2W) is a major source of air pollution.

This paper compares the total cost of ownership (TCO) of ICE 2Ws against E2Ws. Detailed TCO comparisons are provided for E2Ws with lead-acid and lithium-ion (Li-ion) batteries. Because innovative battery swapping options are available for E2Ws in Vietnam, we also explore the TCO impacts of battery renting (via swapping) and battery purchase options. The results inform policy recommendations for reducing the cost gap for E2Ws and accelerating their adoption in the country.

The paper finds that in general, the newer technologies—E2Ws, and to a greater extent, E2Ws with Li-ion batteries—tend to have higher upfront costs and lower operating costs than alternative technologies. But it also finds that the lower operating costs of the new technologies often do not fully offset their high upfront costs. In other words, the total costs of ownership of the new E2W technologies are generally higher than those of the older and dirtier 2Ws.

The analysis also finds that longer periods of ownership tend to close the TCO gap. On one dimension, however—renting versus owning the E2W battery—the newest practice (renting, using the practice of battery swapping) tends to drive up the TCO.

To accelerate E2W development in Vietnam, the paper recommends closing the TCO gap between E2Ws and ICE 2Ws. Because elimination of VAT, registration, and license plate fees alone cannot achieve this, the paper makes the following recommendations:

  • Provide fiscal incentives for E2Ws in the form of tax relief for E2W consumers, covering both one-time and annual tax and fees.
  • Use a feebate system to provide incentives. Increasing the tax rates for ICE 2Ws while reducing the tax rates for E2Ws could be necessary to quickly close this gap.
  • Direct incentives to consumers are the most effective way to close the purchase price gap between conventional and electric 2Ws.
  • Incentives for E2Ws should spur more energy-efficient vehicles and drive advanced battery and vehicle technologies.
  • Adopt international policies that have proven successful in stimulating E2W adoption, including the use of “scrapping incentives” to nudge consumers toward trading their ICE 2Ws for E2Ws.