We’ve wanted to talk about the rise of electric vehicles for a long time – about a year. Where did that year go? What could possibly have been so important that talking about cool cars seemed like too idle a pursuit? It escapes us now. Anyway …
It’s no exaggeration to describe America’s relationship with the automobile as a love affair. Cars came on the scene as part of the Second Industrial Revolution, around the turn of the 20th century, just as the United States was maturing past its adolescence. We were instantly smitten. While other nations embraced high-speed trains, light rail and bicycle lanes, we remained loyal to our first sweetheart – the car. Despite all those hipsters whirring around on Vespas, we are a car culture.
The thing about infatuations, though, is that they don’t stand the test of time. Habits which were once endearing become annoyances. In the car’s case, she is loud. She runs up the credit cards. And, let’s face it, she’s something of a slob.
But she’s been working on herself, and with amazing success. This is no mere facelift. With the rise of electric vehicles, be prepared to fall in love with the car all over again.
Money, money, money
As much as we’d rather talk about the cars, let’s bear in mind this is a personal finance newsletter and concentrate on whether or not an electric car is worth it financially. Evidence suggests it is.
Basically, there are two elements of cost: the initial purchase price and the periodic costs of ownership. Looking at initial purchase price in isolation, you’re almost always going to pay more when switching to an EV from a similarly equipped gas-powered vehicle in the same class. Subsequent costs, though, can be dramatically lower for the EV.
Obviously, fuel is cheaper. By all accounts, it costs roughly half as much to fill a battery array than a fuel tank. Your mileage, to coin a phrase, may vary. If you live near the Illinois-Missouri, Tennessee-Mississippi or California-Arizona borders, then you know how much gas prices differ across a dotted line on the map. Surprisingly to some, the same goes for kilowatt-hours. Some states have cheap electricity and expensive gas while some have cheap gas and expensive electricity. Some have expensive both. (Looking at you, California.) CleanTechnica lists five states where driving an EV could save you $1,000 or more per year. Oregon and Colorado are among them, sure. But so are Maryland and Delaware. The real surprise is New Jersey, though, where New Yorkers and Pennsylvanians both go to fill up.
Even so, it’s important to note that fuel is not a huge portion of a vehicle’s total cost of ownership – just the most visible and thus the most emotionally fraught. Car & Driver estimates the average driver pays $1,700 per year for gas. That’s like three new-car payments, according to LendingTree.
Those payments include not just the purchase price, but the financing as well – and that interest adds up if you have creditworthiness issues, or even if you elect to pay the car off over five years instead of three or four. Car payments also include a warranty. Typically it’s for one year, but they can often be for several years.
Then there’s insurance, taxes, registration and all the other gotchas of car ownership, but they’re not likely to make much of a difference in the gas-versus-electric choice. Post-warranty maintenance strongly favors switching to an EV, though, because a whole lot more can and will go wrong with an internal combustion engine than with a battery.
One item that will affect the calculus – but shouldn’t – is depreciation. It reflects the reality that equipment loses its value as it ages, but it’s really an accounting trick with no cash impact. Let’s say you believe that you’ll own your car for six years; straight-line depreciation suggests that it loses one-sixth of its value annually. Does that mean your car is worthless if you hold onto it for a seventh year or longer? No – it just means you’re driving “free” from an accounting perspective.
Depreciation, though, isn’t straight-line when it comes to cars – it’s accelerated. Your car loses more value during its first year than its second, more during its second than its third, and so on.
Both C&D and Consumer Reports factor depreciation into the equation. CR, however, examines the entire expected lifetime when comparing gas- and electric-powered vehicles, and C&D only looks at the first three years. That’s why CR estimates that EVs are cheaper to own than gas-powered models and why C&D reaches the opposite conclusion. C&D is, to use the technical term, wrong.
But wait! There’s more!
Still, that purchase price is not an inconsequential factor and, if all you’re looking at is sticker price, you’ll pick the gas-powered model every time. There are, however, tax incentives to sweeten the deal for switching to an EV.
Since 2010, the federal government has offered up to $7,500 in tax credits for switching to an EV; the credits might be lower for you if you pick a hybrid. This was always intended as “training wheels” for the industry and, once an automaker sold 200,000 units, it was no longer eligible to pass this benefit on to its customers. Accordingly, the U.S. Department of Energy, General Motors and Tesla no longer need training wheels.
But there are other automakers. Most of the luxury brands – Audi, BMW and Mercedes-Benz, for example – still qualify. At the other end of the scale, so do Kia and Hyundai. In the middle, you have Ford and Toyota.
Aside from the legacy car companies, though, there are also such EV natives as AMP, BYD, Koda Kandi, Wheego and Zenith.
But even if you’re already sold on the Chevy Bolt or Tesla Model 3, there might still be tax dollars to be found. Different states have different enticements. While tax credits on the purchase price are the most obvious, states also offer:
- Discounted utility bills for EV owners,
- Vehicle registration discounts and emission testing exemptions,
- Rebates and tax credits to install charging stations at both businesses and residences,
- Reduced insurance rates,
- More favorable financing rates, and
- Toll-free travel on roads, bridges and tunnels.
There are further non-financial incentives to switching to an EV, such as unlimited HOV lane usage and free parking close to store entrances. Plug In America has a great interactive map.
Charging forward
So, while it’s a complicated formula, switching to an EV is likely in your future. And in your near future at that. We haven’t even discussed the impact of the next iteration: self-driving vehicles. Right now, they’re still very much a work-in-progress, but it’s only a matter of time before they evolve from an accident-prone, late-night punchline into a shiny piece of metal your neighbor makes a display of washing and polishing every weekend. It might be a self-driving Uber that takes you to the airport, and a self-driving truck that delivers the fuel to the flight line. Of interest to many readers of this newsletter, there could come a day when the airplane itself is a self-driving vehicle.
But for now, we’re just talking about cars and light trucks, and whether an electric car is worth it. The devil is in the details. It might be prudent to discuss the pros and cons of EV ownership with a trusted financial advisor. And if that financial advisor already has an EV, it might be a long conversation.