Sunday, November 18, 2012

Are Electric Cars Cost Effective?

See JD Power study: Electric vehicle economics don't pencil out. Excerpt:
"“EV owners report an average monthly increase in their utility bill of just $18 to recharge their vehicle’s battery — which is significantly less than the $147 that they would typically pay for gasoline during the same period of time,” the study said.

The problem, said Neal Oddes, senior director of the green practice at J.D. Power, is that there “still is a disconnect between the reality of the cost of an EV and the cost savings that consumers want to achieve.”

A battery-powered all-electric vehicle will cost about $10,000 more than a similar gasoline-powered vehicle, he said. Based on annual fuel savings, it would take an average of 6.5 years to recoup that money."


investing in farmland said...

If you plan to keep your EV for several years though, isn't that still a really good deal?

Cyril Morong said...

I think it depends on how long. I have no idea how long an EV will last compared to a normal car. And one thing to remember is that if you don't spend that $10,000 now, you can invest it in bonds or stocks and it will be worth more than $10,000 after 6.5 years. That would extend how long you have to keep the EV.

Even if you don't invest it and you spend it on, say, an extra room on your house (say a den). You get 6.5 years of enjoyment out of that.

But at least with an EV you spend less time at gas stations and that has some value. How much, I don't know.

Anonymous said...

This has to be a ceteris paribus situation inasmuch most people finance cars. just saying the average person wouldn't have all the money at once to buy the EV, so there wouldn't be anything invested if you only took out the amount of money needed to secure the EV.

Cyril Morong said...

Okay, suppose you finance your car. Say over 4 years with 48 monthly payments. The EV costs $40,000 and the convnetional car costs $30,000. I used a site that calculates your monthly payment.

At a 3% interest rate, the EV would have a monthly payment of $885 and the conventional car would have $664. At 5%, it would be $921 and $690. Even at 1%, the monthly difference is still $213.

But let's just take the 3% case. The difference is $221. But you save $129 a month on gas. So the EV still costs $92 more a month.

That is about $4,416 after the 4 years of payment. Then, if you still save $129 on gas, it will take about 34 months to make that back (after 4 years there are no more car payments).

So that gets us close to 7 years before you finally break even. But wait, you could have been investing that $92 each month. After 4 years, you will have more than $4,416. How much more would depend on the interest rate you could earn. You have to plug values into a formula called "the future value of an annuity."

Anonymous said...

I really appreciate the nice explanation and it was done very well. I know these are what ifs, so that's why I pose radical questions.
The $92 left of fits perfect in the definition of Economics (scarce resources). So it would be nice to invest the money every month, but more than likely the funds would be allocated elsewhere for other needs and/or wants.

Anonymous said...

I'd rather spend money on the machine than money on fossil fuels to blow out the tail pipe.

Before I switched to a 2012 Chevy Volt, I was driving a 1996 pick-up that is about 16 years old.

I'm *really* looking forward to the fuel and maintenance savings in years 8 through 16 with the Volt.

Cyril Morong said...

Are you going to save money in the long run? It does not look that way