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Why Plug-in Vehicles Are So Inexpensive

Chad's picture

People often tell me that they like the idea of plug-in vehicles—but they are just too expensive.

Some of them haven't driven a plug-in and assume the cars aren't worth much, so they expect them to be very cheap.  Others realize that plug-ins have many advantages and are willing to pay more, but are unable to do so.  In both cases, I typically find that while they are very familiar with sticker prices, they have no idea how much they can save in fuel costs.  They are also often unaware of some of the incentives in place.  They are just assuming that the plug-in costs more.

Consider total cost of ownership

It is true that the price tag of a plug-in is higher than that of a comparable gas car. But they are not more expensive! To determine if one car is more expensive than another, you need to look at all the money you will spend on the car. This is often referred to as the “total cost of ownership” (TCO). Most people are quite surprised when they sit down and do the math. The ones that do like what they see—75% of Nissan Leaf owners, for example, list saving money as one of their primary motivations for buying the car. This is by far the most common reason for going electric. Unfortunately, many don’t know how to calculate what their electricity will cost, so they don’t know how to evaluate the savings.

Calculating TCO is a tricky business as a lot of it is estimating how much you will spend in the future. How much maintenance will you have to do? How much will fuel costs rise? What will the resale value be? How do you account for inflation? Will you pay cash, buy on credit, or lease? How long will you keep the car? What cars do you compare it to? How far will you be driving to work in 10 years?

I would love to give you a simple, reliable formula that works for all cases, but I can’t. Instead, I’ll just do some illustrative examples. They are not intended to cover all cases, or to give you exact numbers. They are just to give you a rough idea of relative costs; if you want to consider other cars, make different assumptions about fuel cost changes or resale value, or add/subtract local incentives, feel free to run your own numbers. I did not “cherry pick” good examples to make my case. I wrote down some cases I thought people might care about, ran the numbers, and here they are.  Assumptions I made are discussed at the end.

Given that exact future numbers are impossible, and more to the point that I have no idea what gas cars you would like to compare, I biased my assumptions towards simplicity.  It may be more exact if I, say, account for inflation; but these simple charts are easier to understand and modify.  I'm not trying to produce exact numbers to "prove" plug-in vehicles are always cheaper (they don't have to be, given all their advantages!); I'm merely trying to help people do the math so they'll stop just assuming that plug-ins are more expensive.

How much will it cost to replace the battery?

That’s one of the toughest questions, which is why I didn’t include it in the chart totals (although I did display a guess for BEVs). Just like gas prices, nobody knows what battery costs will be in a decade. But they have roughly been cut in half over the last decade; and most economists expect that to continue. Tesla is selling battery upgrades, now, at $10k (retail) for 20-25kWh. Ford estimated their 23kWh pack at $12-$15k, and most manufacturers other than Tesla are probably in that range. I started with those numbers, adjusted for pack sizes, and cut them in half for my estimate. The automakers will also get the old pack for reuse/recycle value to help ensure that is possible.

I did not include the pack replacement cost for the Volt; in a PHEV the battery is legally part of the emissions system and is generally expected to last the "life" of the car. This is why the Volt only uses 10.6kWh of a 16kWh pack, so it should not need to be replaced (it should still be able to offer the same range after 150k miles).

Note that you don’t HAVE to replace the battery in a BEV after 10 years either; that is merely an expected replacement expressed by the manufacturer. The battery will not suddenly die; the range will gradually decrease over time, but if you still find the range sufficient, you can save a lot of money by keeping your old battery.  Most batteries are warranted for 8 years, so the manufacturers clearly expect them to last longer than that.

Once you include buying a replacement battery, electric cars aren't always cheaper than comparable gas cars.  But they usually are, and they have enough advantages that they are definitely worth running the numbers on...especially if you think gas prices will rise over time.

Now for the comparisons

Here’s one for the Nissan Leaf.  Note that it comes out very nicely even at current gas prices, and even compared to a Prius:

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Just for fun, let’s try the same comparison assuming gas averages $6/gallon over the next 10 years. $6/gal is not a wild-eyed conspiracy theorist’s number; even if you assume no catastrophes, if gas prices simply rise over the next decade as they did for the last, they may well be over $8/gal in 10 years so $6/gal is a pretty reasonable average estimate.  This shows that very serious savings can be had; an electric car is a great hedge against uncertain gas prices.  Still, I’ll only use $6 once because I’m not adjusting for inflation, or electric prices (which are much more stable), and don’t want to complicate the model:

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Let’s also try the Leaf example for people who lease.  This older example is from Nissan's orignal $350 SV lease and $370 SL lease (I used SL because more people are interested in that trim).  It's got the same term and downpayment as the comparison car, so I'll use those numbers.  It's assuming $4/gal gas. But note that Nissan now offers a $289 lease if you put down $1k more and keep the car 3 more months:

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OK, no more $6/gal gallon or leasing samples. All examples from now on will assume cash purchase and $4/gallon gas. They are all BEVs until the very end, where we will look at a Volt.

Check out the Mitsubishi i-MiEV.  If you can afford a new car at all, you can afford one of these:

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As you can see from the next example, the electric car doesn't always end up being cheaper.  Ford's low-volume play required less investment, but results in a slightly higher per-vehicle cost, and it happens to be sized near the extremely-low-TCO Honda Insight hybrid, which has a great combination of low price and high mpg.  If gas prices stay exactly where they are, and you don't care about the many other advantages to electrification, the Insight could be a little bit cheaper.  Although the Focus is only more expensive once you buy the replacement battery; but at that point, it should have a notably higher resale value (which is not included in these charts because of its close relation to battery replacement).  So the overall comparison is probably more of a wash:

260 While not available everywhere, the new RAV4-EV has long been anticipated:

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Note that the Honda Fit is only available for lease, but Honda did give a price they "would" sell it for:

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The Tesla Model S will be available in less than a month.  They have 3 battery pack options, from 40kWh to 85kWh.  Here's the base model (at least the base battery pack; I did throw in several thousands of dollars in options to equip it more like the competition):

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Here is another case where a gas car could be cheaper than an electric one.  Batteries are expensive, and if you stuff a whole bunch of them (enough for 265 miles of EPA range in a very large sedan) into a car, include buying a second set in ten years, and assume gas prices stay where they are, a BMW 535 (though not an Audi A8!) will be cheaper than a Tesla Model S with the high-end 85kWh pack.  Of course, it has been pointed out that people buying cars in this class are looking for more than just cost savings:

[UPDATE, July 28 2012: Tesla's CEO recently stated that he expected the useful life of a Model S pack to be twice the warranty period of 8 years.  A couple of Tesla engineers have stated the design goal for Model S batteries was at least 70% capacity after 18 years.  If true, the Model S battery may well never need changing (or may at least be a lot cheaper when it finally does need it); so even the 85kWh Model S could well be cheaper in the long run than the BMW even if gas prices stay low.]

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Here is the Volt case. It is somewhat different from a BEV; it has two propulsion systems, so it’s more expensive.  There are no maintenance savings, and some driving still uses gas, so you don’t save as much. My state doesn't offer an incentive for it (only for BEVs), so there's no help there either.  In short, a Volt is not where you go to “save money”. But it’s still not more expensive than regular gas cars! The overall costs look very much in line with comparable gas cars. If a BEV doesn’t work for you, you can still switch much of your driving to smoother, quieter electric drive--with no range issues and without spending more money.  There really is no downside to switching:

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Now for the "blah blah blah" part.  Here are some of the simplifying assumptions I made. You can start with these charts and add complexity if you feel confident about some of the future values.

• I assumed the comparison is for somebody considering a new car purchase. Any new car is a very significant expense; you can of course save money by keeping your old car, or riding the bus or a bike. You have to be able to afford a new car to buy a plug-in; but I don’t think it’s fair to expect plug-ins to solve that problem. They're not making enough plug-ins to replace all gas cars anyway, so all comparisons were made between new cars.

• I ignored inflation. Over 10 years, that can be significant. However, it would be much harder for somebody to plug in their own numbers to these charts if I included it; and many might disagree with the rate anyway (and even if they agreed, it might be wrong). The numbers would clearly be different if it was included, but this exercise isn’t about exact numbers—it’s just trying to illustrate relative expenses.  Some other assumptions, below, reduced the effects of this assumption.

• I assumed fuel costs (both electric and gasoline) will stay the same for 10 years. This is related to the decision to ignore inflation—it’s simpler to change the numbers yourself. Also, after adjusting for inflation, electric and gasoline costs have stayed fairly steady if you take a very long view (many decades). If you look at the past decade or so, gas has risen significantly faster; and even ignoring possible catastrophes, most economists believe that will continue. Given this, I expect actual savings by plug-in owners to be larger than shown in these charts. But again, I’m not trying to show exact numbers, or show plug-ins in the best possible light. I’m just trying to get people to stop assuming that plug-ins are more expensive.

• I assumed a 10-year span. Most cars last longer than that; but most cars are kept by a single owner for a shorter period of time. My primary reason for choosing 10 years is that it greatly simplifies questions about battery replacement costs and resale values—I didn’t have to include calculations for either one; I could just address it in text as compared to the savings. Given that battery prices have been cut in half over the past decade and that most economists expect that to continue, a BEV that shows enough savings over 10 years to purchase a new battery at half current costs should come out ahead—and with a new battery, the resale value of the BEV will clearly be higher than that of a 10-year-old gas car. If you sell before 10 years, the fuel savings are obviously less, and resale value will suffer with an older battery. But you will have saved some fuel costs, and not incurred the new battery expense, so you’ll still be ahead. The resale won’t drop too far because the buyer will be looking at the same numbers going forward. For example, despite a much smaller fuel savings, KBB.com says a 2006 Jetta diesel retails for $17,143, while a faster gas version sells for $12,587.

• I assumed a cash purchase. Again, this is much simpler, and looking towards total costs. If you lease, the lower total costs mean your car + fuel payments will be less--and even if you don't get the 7,500 tax credit, the lessor does, so your payments will be lower.  If you are buying on credit, your monthly car payments will be higher for a plug-in; but your monthly fuel payments will be much lower, and if long-term costs are less, you will pay less overall per month. (However, the car payments don’t go for as many years as the fuel payments, so early outgo will be greater than later outgo unless gas prices rise considerably. If you are stretching for a gas car, it may be possible that you can’t afford a comparable plug-in on credit, even if it has a lower TCO). 

• For local incentives, I assumed the purchase is in Washington State. This one is partly laziness—that’s where I live, and I’d already drawn up some of these charts for local display. WA does not have a rebate, but it does offer a BEV sales tax waiver that is included in the charts (it does not apply to PHEVs like the Volt).  Some states (and other local sources, like counties, AQMDs, and employers) have more incentives, some don't have any.  Some vary by vehicle value, some have caps, and some include some significant benefits--like HOV access--that are not financial (although we can tell from resale values that thousands of dollars of value are assigned to some of them). Trying to figure an “average” value seemed like a complicating step. Plug In America keeps a list of state-by-state incentives HERE; be sure to look at the ones for your state and make adjustments as necessary. Note that gas in WA is currently well over $4/gal, but I did not raise the numbers for this comparison.

• I assumed “comparable” gas cars have similar exterior dimensions, interior space, features and 0-60 times. Such cars proved a little hard to find, partly because some electric vehicles have different packaging. I tried to pick plug-ins that were similar but slightly better than their gas counterparts in as many of the criteria as possible, but not every one is better in every way. More significantly, it might not be what you are interested in. If you don’t like the comparison cars, feel free to plug in your own.  Just remember how smooth, quiet, torquey and responsive the electric cars are, and how well-equipped most of them are--the cheapest possible gas cars are not suitable comparisons.

• I ignored insurance. I assumed the rates would be too similar to matter. Some argue plug-in rates may be higher because the cars are more expensive; but some recent studies show that plug-in rates are lower because the drivers tend to be better—total claims rates are lower. These cheaper rates may disappear as plug-ins move to the mass market.

• I assumed BEV maintenance is 55% that of a gasoline car, and PHEV maintenance is the same as a gasoline car. There have not been enough cars out long enough to find real numbers, so this is a guess; but without oil changes, emissions inspections, and all of the hundreds of parts in a gas car that are missing, this seems reasonable.  Plug-in maintenance costs do not include battery replacement as that is accounted for separately.  Gas car maintenance costs do include gaskets, heads, spark plugs, transmissions, catalytic converters, etc.

• I assumed that it costs $1,000 to install an EVSE to charge the car. Of course it could be much more if you need a new electrical panel. It also may be much less; after 3 plug-ins, I’ve not spent more than $275 for a 240V outlet to plug in to. People that buy a PHEV or don’t drive much may just use an existing 110V outlet (I did that for one of my cars, and wish I had for a second) and pay nothing. There are also tax credits and some programs still going on, so others may get an EVSE for free. EVSE prices and installation costs were suspiciously high at first, but seem to be coming down to more reasonable levels. $1,000 is probably a pretty good “average” guess for right now, but I expect it will be less in the future.

Comments

Chad's picture

Accuracy versus simplicity

As I noted in the blog, when calculating future values, there are a lot of trade-offs between accuracy and simplicity. Since I knew I could never do a great job on accuracy for no other reason that I can't possibly know what car any reader wants to compare to, I leaned towards simplicity with simple charts that anybody could modify. I recently read a really nice article that went the other way--his numbers are hard to change if you want to consider another car or disagree with some of his assumptions, but he's very careful and detailed about the numbers. Take a look at http://seekingalpha.com/article/756681-ev-myths-realities-part-3a-tco-and-kicking-the-subsidy?source=email_rt_article_readmore&ifp=0.
Anonymous's picture

Maintenance cost?

I am curious where the annual maintenance cost number comes from. I own a LEAF and might have to take it in one a year for fluid replacements, but that isn't going to cost $360 a year. So far I'be paid $40 for the annual check up. Some other owners didn't even have to pay for it. With regards to the annual electricity cost, mine comes out to about $200/year. I get cheaper rates because I charge off-peak time with Portland General Electric. I charge about 2 or 3 hours per night.
Chad's picture

From beyond.

I'm not aware of any good data on plug-in maintenance costs, so as note of I kind of pulled it out of the air. I certainly have spent a LOT less than $360/year on my 2003 RAV4-EV, and Leaf costs look really low. On the other hand, some OEMs like Tesla seems to charge for a significant yearly inspection, so it's hard to say how it will all average out. I was trying to be conservative, as I was comparing to an average of all gasoline cars.
Anonymous's picture

15,000 Miles/Year Assumption

I love the article and all the details you put in for various real world scenarios. And your admission that there are assumptions about the future that may or may not work out in favor of buying an EV (even one case, Focus EV, that might not work out at all). One assumption you made without caveat is the yearly mileage of 15,000. It's only a little higher than what is reported as average for US drivers (good), but that number is problematic for EV drivers with limited range and longer refueling times. For example, to drive 15,000 miles a year in my iMiev, I need to drive 40 miles a day 365 days a year. This is possible, but without the ability to do a long trip in it 15,000 miles a year is a stretch (with quick charge MAYBE I could do a one-way trip of 150 miles in a day, but not reasonably often and not now, that I know of on the East Coast). I think you should add that to your blah-blah-blah list ... At 7,500 miles a year, the i probably breaks even with a comparable gas car, but has the added benefits you don't mention: more fun to drive, more unique, and more socially/environmentally conscious.
Anonymous's picture

miles per year

Thanks for the note, Anon. We and others have surveyed owners and find that almost everybody buying a BEV (as opposed to a PHEV) is in a multi-car family; and while the BEV is often purchased as the "second" car, it quickly becomes the go-to primary car, with the gas car only gets driven when absolutely necessary. This is very nearly universal, and results in 15k/year being a pretty realistic number for most BEVs. The Mitsu i is one of the shortest-range ones though, so if one does do fewer miles, that is indeed a likely one.
Richard's picture

Cost per mile for electrics vs combustion cars

Ran into this article you might like, Chad.

Bottom line is by this author's calculations, driving a Honda Fit EV costs 2 to 3 cents per mile, versus  12 to 15 cents per mile for an average gas burner.

But consumers don't yet grok the cents per mile figure. I think a better way to put this is that driving the plug-in is like buying gas at 84 cents a gallon, versus, well, we all know what gas really costs.

If an automaker offered a deal where people paid a small premium for a car, but were guaranteed gasoline at 84 cents a gallon for the life of the car, people would take notice. That's essentially what already exists with plug-ins.

Anonymous's picture

Last comparison: Jetta

I have two basic issues with the comparisons: one general and one about a specific comparison. My general complaint is that base-model electrics, with no added options are being compared in many of the comparisons with gas variants with all the bells and whistles. I don't think this would drastically alter the point the author is making if the base-model electrics were compared to base-model regular cars, but it does exaggerate the total cost of ownership somewhat for the gas and hybrid cars. This unequal comparison is not true of all the comparisons; but definitely some of them. The last example illustrates this well. The least expensive Volt, with no added features, is $40K minus one dollar; but it's compared to the most trimmed out Civic and Jetta. A more specific complaint is again with the last comparison. I feel that any prospective shopper considering an electric would have as one of his or her priorities to choose a vehicle that is better for the environment and/or use less energy than an average American choice. With this in mind, why would someone considering a Volt also consider the most gas-guzzling VW Jetta version available, when there is a diesel variant available for about the same price as the one stuck in above. The TDI gets 40% better fuel economy and can run on any blend of renewable fuel without losing significant fuel economy and can be had for about $25K (same as the SEL above), so why would someone so energy conscious not be aware of this choice and be considering the gas-guzzling five cylinder Jetta. Alternatively, if the author had stuck in the value-version Jetta, with the antique four banger brought back from an earlier generation for under $18K, that would make sense, because that Jetta trim is $7,000 cheaper than either the SEL or the TDI.
Anonymous's picture

I am puzzled by your general

I am puzzled by your general complaint. I did not always use "base-model electrics", nor did I always choose gas cars "with all the bells and whistles". I used the high-level Leaf trim, and upgraded both Tesla models to match the competition. I have not seen a Focus EV feature list, but Ford has said several times it will be their most-loaded model, so I am sure it's at least as good as the other Focus I compared it to. Even the base Volt is well-equipped, and I did not compare it to the most expensive Jetta. The Fit EV and RAV4-EV have not announced features yet, so it's obviously all guesswork there. As for your specific complaint, the point of these comparisons is that electric is not a rough, slow, noisy powertrain option comparable to the cheapest gas cars. It is smooth, quiet and responsive; so it is unfair to say electrics are "too expensive" until you compare them to similar (size, room, 0-60 time) gas cars. People that care only about reducing gas usage will go electric; people that care only about cost will not buy a new car; but this comparison is for most shoppers that balance many factors--and environmental issues generally score low on the list, as a quick survey of the roads will tell you. Everybody has a different set of criteria; that's why so many different cars are available. If you are looking at different cars than I used, feel free to run the numbers for the cars you care about.
Anonymous's picture

Why use Washington?

Using Washinton the only state in the union that happens to eliminate sales tax on BEVs is a significant flaw in this otherwise good article. If the author truly wishes to convince people that BEVs and PHEVs are coste effective, then this error should be corrected. Federal incentives that can be applied nationally are the only incentve that should be incoluded in any calculations. .LB
Anonymous's picture

$/gal v $/kWh

It's chosen not just for the sales tax, but because WA has high gas prices and low electricity prices which maximize the difference in per-mile cost. Also note that the electricity cost also ignores refueling inefficiency which is far more significant for PEVs. That would raise the electricity cost by 10% to 15%. By itself that wouldn't change the overall result, but its significance increases with electricity price so it would be more significant in other states. There's plenty of other cherry-picking optimism in there.
Anonymous's picture

That is incorrect.

I did not use WA gas prices, which are higher than $4/gallon. Charging inefficiency was included.
Anonymous's picture

No, charging inefficiency is not included

I stand corrected on the gas price. And, using numbers given in the LEAF calculation: $0.08/kWh * 15000mi/yr * 0.34kWh/mi = $408/yr That means the LEAF's $408/yr electricity cost is using the on-board EPA efficiency rating of 0.340kWh/mi which doesn't include the charging losses. The extra 10%-15% per year can't be ignored, especially in areas that don't have such cheap electricity rates.
Chad's picture

EPA's kWh/100 miles figure does include charging overhead

They have to, as that's the only way they can figure yearly fuel costs. "For both EVs and PHEVs, the electric consumption rate is wall-to-wheels, so it accounts for the electricity used to charge the battery and not just the electrical energy used to move the vehicle."
Anonymous's picture

Thanks

Thank you. I stand corrected (again) on the charging. The best readable source I could find was the i(MiEV) page which explained the mpge and kWh calculation (http://www.imiev411.com/c/explaining-monroney-label-your-customer). I look forward to adjusting my spreadsheet to be a bit more optimistic, but it's still not going to stack up for me: nowhere near 15k miles LEAFable (it was 13.5k out of 18k but fortunately it's dropped), electricity at $0.135/kWh ($0.142 marginally) and no state incentives. And I don't think my case is at all extreme. It's a shame, because I'd love to own a PEV. Had you titled your post "Why plug-in vehicles are so inexpensive in Washington State compared to high-end trims of gasoline and hybrid cars if your needs and the range are sufficient for you to drive them 15,000 miles per year and assuming you'd only get combined mpg for those 15,000 miles" I'd have been less concerned about the optimism and cherry-picking.
Anonymous's picture

Every State is Unique

The author did try to explain and note his every assumption. Each state handles things differently. I live in Arizona and the annual license fee for EVs is only a few dollars, compared to ICEs, which are many hundreds. This would add up to probably over $4,000 over ten years.
Anonymous's picture

In "any" calculations? No.

In "any" calculations? No. Best would be "enter your state and we'll live re-calculate for your local incentives." But as Washington is a fairly average state as far as incentives go, it's as good as any. It's not an error if it represents reality. And if you look, for the majority of them, they even out EVEN WITHOUT THE INCENTIVES! (By contrast, I bought a Prius in 2004, have 120,000 miles on it, and by my calculations, based on the massive (unforeseen) increase in gas prices, I have long since made back my money compared to the other, much cheaper, similarly-sized cars I was looking at (Hyundai Elantra and Volkswagen Jetta.)
Chad's picture

Because there is no "average" incentive, so I choose an example

Thanks LB, I understand your concern, and completely agree that numbers for a single state are not ideal. However, as noted in the text it was intentional. In other places (not just states--some counties, AQMDs and employers have incentives too) you may get different types: flat-rate, percentage-based, with a ceiling, or non-financial. With no easy way to average them, I instead chose the easiest example for me. I included a link to state incentives, and encouraged people to run their own numbers. That is the only way to get around the many problems with examples--especially the really big one, which is that I don't know which cars to compare. Not everybody is eligible for the federal tax credit either, but I think the charts are more useful showing it than not. Individuals have to adjust the calculations for their own situation.
Chad's picture

Part of the problem is my sloppy labeling...

Rather than using "Sales tax (WA)", I should have used something more like "Local incentive (WA example: sales tax exemption)". These charts made perfect sense when I was just displaying them locally; but for this national audience it does need an update. Using sales tax as a placeholder for local incentives is explained in the text, but it is not clear when you just look at the charts--although it is clear whether you should apply it or not. I will change the label when I think of something clear that fits in there.
Richard's picture

Compared to CA

The Washington sales tax exemption is an interesting twist.  For what it's worth, your LEAF and Focus charts are a close match to California, where the CVRP rebate is a flat $2,500 for a 100-mi range ZEV.

Buying a Mitsubishi i in either CA or WA is pretty close as well, because the WA sales tax exemption is lower because of the lower cost of the car. But the CA is lower as well, because it's indexed to the range of the car. So it's a wash compared to the Mini Cooper. About $2,000 in either state.

RAV and Tesla buyers would be better off in WA. Although Oregon has no sales tax too. However, getting out of paying sales tax isn't always as easy as crossing the border. California will try to get their tax money.

It's obvious a lot of work went into this, Chad. Thanks for sharing it.