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Electric Vehicle Charging Stations: Buy or Lease?

Written by: 
Sylvi Nihan, CPA

With the growing recognition of the environmental effects of car emissions, and an inherent need to possibly save money, more and more people are purchasing electric vehicles nationally and globally. Just last year, of the 17.2 million cars purchased in the U.S., 361,310 were electric—representing a massive 81% increase from 2017 sales. Globally, 2018 smashed records with 2.2 million electric cars purchased—an increase of 64% from 2017.

Locally, as of this year, the Air Pollution Control Commission issued a policy that requires 25% of parking spaces in South Boston and Downtown Boston be equipped with electric vehicle (EV) charging stations.

With this rapid growth rate of electric car sales, businesses might begin to think about the installation of charging stations for the benefit of their employees, customers, and members of the community. Whether the EV charging stations are used to generate more foot traffic within a place of business, or used as an employee perk to attract young talent, there is no doubt that having an EV charging station will become the norm for various types of businesses as the electric car trend accelerates.

However, organizations are currently faced with the important decision of whether to buy or lease these stations from an EV charging company. There are benefits and challenges to each decision, but one must consider every factor of the financial implications of buying or leasing.

The decision will depend on a variety of factors, such as whether a funding mechanism exists (some funding mechanisms do not allow leasing) and whether the company prefers to shoulder capital or operational costs. This is why it is important for companies to consider the accounting ramifications of each option.

Buying

If the company makes the decision to buy the station, these are some costs to consider:

Electric Car Charging Station Installation Cost – This includes costs to connect electrical power from either an electrical panel for slow chargers, or upgrading power capacity potentially through a larger or additional utility transformer. This infrastructure ultimately attaches to a charging station.

Hardware – This includes the charging station itself, along with all of its required equipment. These costs are paid up front.

Software – This includes networking services that allow drivers to interact remotely with charging stations to check everything from location availability to charging progress. The software also allows owners of the stations to gather meaningful data for understanding the volume and behaviors of their customer base and identify future needs. These costs are typically paid as an up-front, one-time fee or in the form of an annual fee.

Maintenance – Like all hardware equipment used by the public, quality is critical. Should an issue ever arise, premium providers offer maintenance services with experienced partners. The amount and structure of payment for these maintenance costs can vary based on the circumstance.

Accounting Implications of Buying

Capitalizing Costs – When capitalizing costs, companies will have to determine the "estimated useful life” of the hardware, software, and maintenance. Depending on the quality of the machine, an EV charging station can last anywhere from 1 to 15 years. Given how new these types of capital expenditures are, all of the costs should be thoroughly analyzed before making an accounting policy election in regards to the useful life.

Leasing

If the company makes the decision to lease the station, the costs to consider include:

Periodic Payments – The company’s monthly or annual lease payment will cover all of the aforementioned costs. The terms offered by EV charging infrastructure companies vary, but are typically 1 to 5 years.

Funding Mechanisms – One major factor to consider when choosing to lease is whether you are applying for a funding mechanism. Depending on your state or the entity from which you receive funding (e.g. a utility company), some funding mechanisms do not allow for the lease of an EV charging station. If your company is hoping to receive these types of funds, you may have to contemplate buying rather than leasing.

Accounting Implications of Leasing

Current GAAP accounting for operating leases is relatively straightforward. Lease payments are expensed on a straight line basis over the life of the lease. However, decision makers should be aware of new accounting guidance ASU 2016-02, which requires companies to record a right-of-use asset and a lease liability on the balance sheet. Amortization of the right-of-use asset continues to be recognized on a straight line basis. It is important that decision makers consider all the relevant accounting guidance prior to making a decision to buy or lease.

Also, tax treatments may differ from accounting treatments—so be sure to consult your tax adviser.

Conclusion

As the popularity of electric vehicles continues to grow, your business may be inclined or required by code enforcement to acquire an EV charging station to accommodate your customers and employees—and possibly gather beneficial information that will enhance business alignment. No matter your reasons for installing an EV charging station, it is necessary to consider all of the financial aspects of the decision to buy or lease so your company makes the optimal choice for maximum benefit.