Understanding the factors that affect life cycle costs in the earliest stages of product development bring valuable insights for vehicle architecture decision making. This study presents a life cycle costing model used to compare hybrid electric vehicle architectures with varying levels of electrification to a reference conventional car. The work presented highlights the importance of considering total costs of ownership (COO) and operation alongside manufacturing costs in making strategic business decisions. Results from the life cycle cost model scenarios set for 2015–2024 show that car architectures with increased electric range capability allow for significant customer fuel cost savings. These savings can offset increased manufacturing costs within the first three years of ownership based on US Energy Information Agency (EIA) current fuel and electricity pricing forecasts. If fuel prices or annual vehicle use remain low, electrification becomes less attractive as payback periods are extended beyond 10 years time. Regardless of future energy pricing scenarios, the fixed costs of vehicle ownership remain the largest costs to the end user. Manufacturers can use this information to their advantage in creating new business models and designing cars that deliver increased value to the end customer. Because electrification significantly reduces CO2 tailpipe emissions, government incentives and taxing schemes are expected to play a positive roll in offsetting a large part of the additional manufacturing costs. Finally, optimization methods are used to determine sensitivities of variables that affect total cost of ownership. Of these variables the user’s city/highway driving profiles and the price of fuel/Electricity have the greatest sensitivity to cost of ownership.

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