Why Plug-in Vehicles Are So Inexpensive

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:


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:


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:


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:


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:


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


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


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):


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.]


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:


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.

Posted by Chad

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