You may have seen a Tesla turn a street corner and wondered, “Is it worth the cost? Am I missing out by not having one?”
Although electric vehicle (EV) sales are still a fraction of the entire automobile market, EVs’ pace of development and share of the road continue to accelerate. The number of electric cars on the road topped 2.02 million at the end of 2021.
People are buying electric cars because they want to reduce the waste and cost that comes with car repairs and stop relying on fossil fuels to power their vehicles. You may have even thought of buying one yourself, but you’re wondering if you’ll really save money and help the environment if you do. What are the real benefits of owning an electric vehicle, and what should you know before you do?
As of March 2019, More than 1.18 million electric vehicles were on U.S. roads.
EV sales were up 81% in 2018 compared to 2017.
In 2018, EV sales totaled 2.1 million globally, up 64% from 2017.
Source: Edison Electric Institute
Financial Benefits of Owning an Electric Vehicle
Driving an electric car could save you cash in ways that a conventional automobile can’t. The interplay of an advanced fuel economy, reduced maintenance costs and governmental stimulus packages could reduce your overall auto expenses.
Electricity Costs Less Than Gas
Electricity costs are more stable than gasoline prices, but several factors affect the fuel efficiency of electric cars, such as:
- Electric utility costs, which are measured in kilowatt-hours (kWh). Averages vary by state and region. Over the years, electricity costs have fluctuated from 3 cents to as high as 50 cents per kWh.
- Battery capacity, which is measured in kWh per 100 miles. For instance, the Tesla Model 3 Standard Range Plus is listed at 24 kWh per 100 miles. One other metric used is miles per gallon of gasoline equivalent (mpge) or eGallon.
- Average gasoline costs, which vary by state.
- Miles-per-gallon (mpg) of a specific gas-powered automobile.
The Tesla Model 3 Standard Range Plus, for example, is rated at 24 kWh per 100 miles, equating to approximately 4 miles per kWh (100 miles per 24 kWh = 4.17 miles per kWh, roughly 4 miles). Newer EV models have better fuel economies than older cars.
Lower Maintenance Costs
EVs also require lower periodic maintenance. Hundreds of interconnecting parts power a gas-fueled vehicle, which variably increases chances for defects. Maintenance issues include frequent oil changes, filter replacements, tuneups, exhaust repairs and other servicing requirements.
Electric cars, however, operate on one single component, the electric motor, requiring minimal upkeep. Maintenance for EVs is estimated to cost an average of $330 less than gas-powered vehicles, or $949, on average, annually.
Electric Vehicle Federal Tax Credit
In addition to lower maintenance costs, a federal tax credit is offered for plug-in electric vehicles (PEV). Owners are eligible for the plug-in electric vehicle credit (IRC 30D) if their vehicles have satisfied these terms:
- A battery with at least 5 kWh capacity
- An external charging source
- A weight that doesn’t exceed 14,000 pounds
- iCertified emission standards
The credit ranges from $2,500 up to $7,500, but it’s conditional. The tax break is known as a flat credit, which means that the maximum amount of $7,500 is only applied if a purchaser’s tax bill exceeds this amount. In other words, if you owe $3,000 in income tax, the tax credit will only cover that amount. The remaining $4,500 will not be refunded.
The credit is also dependent on the manufacturer and date of purchase. For example, the Honda Clarity plug-in hybrid is eligible for the maximum credit amount, but only a $3,750 credit is available for the Tesla Model 3 if purchased between January 19, 2019, to June 6, 2019. If the vehicle was purchased between July 1, 2019, to December 31, 2019, the credit is reduced to $1,875.
The credit is decreasing because the federal government is phasing out the incentive as a sales benchmark is reached. Once qualified manufacturers reach 200,000 sold vehicles, the tax credit expires.
As sales increase for each automaker, the credit tightens. Tesla hit the mark at the end of 2019; thus, no tax credit is offered for newer 2020 models.
Additionally, if a PEV is leased, the credit goes to the carmaker and may or may not be applied to reducing the monthly lease payment.
Any applicable tax credit cannot be passed on to a new owner, even if the original title holder didn’t take advantage of it.
State Incentives and Benefits
Most states also offer a range of incentives for PEVs and HEVs through state legislation or local utility companies. Various stimulus packages include a combination of tax breaks or rebates, fleet or acquisition mandates, emission testing exemptions and utility rate reductions. Common perks include:
- Purchase rebates. Kentucky, for instance, extends rebates for EV purchases while Texas provides purchase vouchers.
- High-Occupancy Vehicle (HOV) access or free parking. Some states permit EV owners to bypass multiple-rider restrictions, allowing access at all times. Others grant free entry to toll roads or complimentary parking.
- Exemption from fuel emission testing offered by 14 states.
- Reduced utility charges or rebates for charging EVs. Utility companies provide these incentives in 13 states.
- Legislative support for EV purchases or mandated fleet requirements.
- Decreased licensing, registration or road use fees. Four states grant these benefits. Alternatively, other states charge additional fees for EV drivers.
Review your state of residence and local utility company incentives for specifics.
Environmental Benefits of Owning an Electric Vehicle
The atmosphere also benefits from electric cars. Studies have shown that emissions from the life cycles of EV batteries are estimated to be less than ICE vehicles.
A standard EV in Europe produced 50% less greenhouse gases compared to gas-powered automobiles within the first 93,000 miles driven.
Compared to the most efficient petrol-powered vehicle, a hybrid, a typical EV in the U.S. produces roughly 34% less CO2 emissions, while producing about 64% less pollutants than gasoline automobiles.
Tailpipe exhaust from conventional automobiles emits most of the greenhouse gases compared to manufacturing pollutants. The production of lithium-ion batteries generates a third of all CO2 pollution emitted by electric cars. They’re increasingly being repurposed, however, for other less-energy-consuming devices. And the rare-earth materials used in their manufacturing are being recycled for other applications.
The True Cost of Owning an Electric Vehicle
In some scenarios, driving an eco-friendly vehicle could be more costly than in a gas-fueled vehicle. Battery technology, utility rates and uncertainty towards electric cars are influential variables that could hurt your wallet. But owning an EV could save you money under the right circumstances.
The average purchase price for an electric vehicle is currently $54,380. Although this average factors in a range of EV models, only gas-fueled, mid- and full-size luxury and high-performance vehicles cost more.
Although this sounds intimidating, electric car purchase prices have dropped by nearly 15% since 2018. Lithium-ion battery manufacturing costs, which cascade down to EV lot prices, have slid year-over-year since 2010.
COMPARING ELECTRIC AND GAS VEHICLE PURCHASE PRICES
(Compact Sedan) 2019 Honda Clarity Electric—$37,275
(Compact Sedan) 2020 Honda Civic EX—$22,702
(Subcompact) 2019 Chevrolet Bolt EV LT—$33,899
(Subcompact) 2020 Chevrolet Spark—$14,976
(Subcompact) 2020 Hyundai Kona Electric SEL—$37,735
(Subcompact) 2020 Hyundai Kona SEL—$23,260
(Midsize truck) 2021 Rivian R1T—$69,000
(Midsize truck) 2020 Toyota Tacoma Double Cab SR5—$34,041
Source: Kelley Blue Book. Accessed March 2, 2020.
Home Charging Station Cost
Equipment costs for installing a residential charging station are minimal for most modern built homes, requiring only a cord set charger and a reachable outlet. The cord set charger is available in two tiers, AC Level 1 and AC Level 2, based on how fast they can charge your vehicle.
Level 1 Home Charging Station
Level 2 Home Charging Station
Requires a 120V outlet. Most EVs can be charged overnight to accommodate daily driving distances. Most manufacturers include this Level 1 cord set charger with the purchase of a vehicle for this reason.
To power an EV with a Level 2 cord set charger, 240V service is required, which is also standard for most homes. It can charge an EV at faster rates and has advanced data-gathering features.
A Level 1 outlet upgrade for a single home costs approximately $400, factoring in service upgrades or wall or floor penetration requirements.
A Level 2 upgrade for a detached residence may cost around $1,400.
Depending on your home’s infrastructure and circuitry and whether it’s a separate unit or part of a residential complex, extra installation may be required, which would affect the price of installing a home charging station. Home and EV owners should first contact a qualified electrician to determine if there is sufficient electrical power available.
Vehicle Battery Cost
Day-to-day charging-cycle costs vary according to the battery’s fuel economy, range, local utility rates, driving frequency and unique driving conditions. The more you need to charge it, the more it will cost.
For example, the 2020 Tesla Model 3 Standard Range Plus has a stated capacity of 24 kWh per 100 miles. Using the national utility rate average of 13.04 cents per kWh, it would cost approximately $3.13 to fully charge the battery (24 x .1304 = 3.13). Utility rates vary by your state of residence.
If your plans include frequently driving the vehicle in a frigid climate with the heat on full blast and the sound system blaring, you’d need to charge the battery often, which would cost you more in the short-term. In the long term, the battery’s lifetime value would diminish, making the entire investment more costly.
Insurance premiums are higher for electric cars because EVs have steeper purchase price tags. Repairs to an advanced, engineered battery cost more for insurance companies to cover. Electric cars cost approximately $400 more to insure on an annual average. For example, we analyzed and found out how much tesla insurance costs differ for each model/year. As electric cars become more mainstream, car insurance rates should fall accordingly.
The same variables that are factored into standard automobile insurance rates, such as driving record and place of residence, also apply.
Annual Cost of Ownership
Yearly expenses and the overall value of owning an electric car can significantly vary by the state you live in, considering all required purchasing, maintenance, insurance, and government and utility incentive factors.
In 2017, a standard gas vehicle
- In Hawaii had to get 34.1 mpg to make it more cost-effective than an EV.
- In Washington had to get 90 mpg to give it a financial edge over an electric car.
- In the U.S. had to get 57.6 mpg to qualify it as a better buy than an EV.
Specific makes and models can lead to significant fuel savings compared to standard automobiles. Driving the 2020 Tesla Model 3 Standard Range Plus, for instance, could save owners an average of $4,500 in fuel costs over a five-year period.
Sometimes, the yearly costs of EVs can exceed some fuel-driven cars. The average annual price of driving a small gas-powered sedan is 14% cheaper, and a hybrid is 7% cheaper.
Common Questions About Electric Vehicles
Because EVs are engineered differently, it’s difficult to compare them to traditional automobiles. This can make it challenging to measure the cost-benefit of owning an EV. Knowing the engineering and handling basics can help you decide if purchasing an electric car is the right choice.
How to Fit an Electric Vehicle Into Your Budget
Understanding how an EV functions keeps you from shopping in the dark. The next step is knowing the marketplace and the available financing options.
Shop Different Makes and Models
Consider why you want to buy an electric car in the first place. Most EVs aren’t ideal for carrying many passengers. To fit them in, you could shop for electric SUVs, electric luxury models and even electric trucks, but you’re going to spend more.
And although Tesla leads in brand recognition, its lineup falls on the luxury end and consequently has sizable markups. Many other automakers have developed competitive models. The 2020 Hyundai Kona Electric, 2019 Honda Clarity and Chevrolet’s 2019 Bolt, for instance, are ranked as some of the best EVs on the market.
Consider buying a pre-owned certified EV. Most vehicles have low mileage, are well-maintained, were previously leased and can save you money.
Electric cars generally depreciate more than regular automobiles. As battery technology continues to advance with less production costs, manufacturers continue to lower prices, which trickle down to the used car lot. Used EVs cost 43%–72% less than new releases.
While automakers offer standard bumper-to-bumper warranties, they may or may not be transferable. But most manufacturers provide an 8-year/100,000-mile warranty to ensure that 70–80% of the battery’s range is maintained. Some states have adopted California’s emissions warranty coverage that extends to 10 years or 15,000 miles for partial zero-emission vehicles.
Thoroughly inspect any used vehicle you’re considering buying, including an electric vehicle. Have the dealer check the remaining battery range. Although you won’t have the same ICE vehicle repairs or tuneup concerns, be sure to spot check for other signs of wear-and-tear.
Shop Around for Car Insurance
Although premiums are usually higher for electric cars, some auto insurance companies offer discounts:
- Farmers Insurance may offer 5% off on all major coverages for owners of hybrids and EVs.
- Liberty Mutual Insurance has an alternative energy discount for qualified electric and hybrid car drivers.
- Travelers Insurance offers a discount on car insurance in some instances for hybrid or electric vehicles.
- Electric Insurance Company, a subsidiary of GE, offers a 10% incentive for hybrid and EV models.
Although discounts may reduce monthly premiums, they don’t guarantee you’re getting the optimal rate, which varies by insurer.
Examine Finance Options
In addition to insurance, the same financing options for gas automobiles are available for EVs. Review your financials to determine if you should lease or buy. Whichever option fits your credit history, know that electric vehicles depreciate faster than traditional automobiles.
If you decide to buy, your auto loan will be worth more than the value of the vehicle, especially for electric cars. Consider this if you think you may sell or trade-in the EV. Monthly payments are typically more with an auto loan, especially with EVs, because they’re more expensive.
When leasing an electric vehicle, pay attention to the residual value. With a lease, you’re paying for the depreciating value of the car. Sometimes manufacturers will bump up the residual value to offer an attractive, low monthly rate or to replace slow-selling models on the lot. Let’s say; however, you decide to buy the EV when the lease expires. If the residual value has been artificially hiked to lock-in the low rate, you will have to pay more than if you could buy it pre-owned.
If you decide to take out a loan, research national or local credit unions, which may offer lower rates than banks for sustainable driving. Check for local governmental subsidies to possibly reduce your monthly payments as well.
Expert Advice on Electric Vehicles
MoneyGeek reached out to an expert on electric vehicles to help you make an informed decision. He explains why they cost significantly more than typical cars and discusses more information on EV batteries and common misconceptions.
- Why are electric vehicle price tags, on average, more than standard automobiles'? Do electric vehicles’ better fuel economies, on average, make up for hefty purchase prices?
- What are some technological advancements in battery manufacturing? How will these advances impact future battery performance and cost?
- What are some misconceptions of electric cars that are floating around?
Assistant Professor of Environmental Policy at the School of Environmental Sustainability at Loyola University Chicago
Vice President of Electric Vehicles at Geotab
Resources for EV Owners & Customers
Learn more about electric vehicles and how they compare to regular cars, benefit the environment and might not be for everyone.
Edmunds's True Cost to Own: Edmunds is a legacy resource on everything auto to help customers stay informed of the automobile market. Edmunds offers a price calculator that factors in a range of variables that determine a vehicle’s cost of ownership.
Edmunds's New Car Incentives and Rebates: This tool from Edmunds helps shoppers stay up-to-date on new car financial incentives.
Edmunds's Low APR or Cash Back Calculator: This is another calculator tool offered by Edmunds to help buyers compare APR and cash-back incentives by manufacturer and model.
The U.S. Department of Energy's Alternative Fuels Data Center — Vehicle Cost Calculator: The Department of Energy offers a robust, alternative, cost-of-ownership calculator for consumers.
The U.S. Department of Energy's Alternative Fuels Data Center — State Laws and Incentives: This list of federal and state incentives for alternative energy use is provided by the U.S. Department of Energy.
Tesla's List of Electric Vehicle and Solar Incentives: The automaker offers a list of federal and state financial incentives.
Kelley Blue Book: The Kelley Blue Book is an established auto information clearinghouse created to help shoppers price, research and shop for vehicles.
The U.S. Energy Information Administration's Electricity Data: EIA provides information on the United States energy sector. This tool shows electricity data by state and region.
The U.S. Department of Energy's Fuel Economy Website: This government website shares fuel economy information. It is good for an unbiased analysis of fuel economies, with various searchable features.
Maximize Your Investment
There are many things to consider if you’re thinking about driving green. Although price margins are shrinking and adding buying appeal, EVs haven’t yet gained a mass-market audience, which keeps purchase costs elevated.
In the meantime, under certain conditions, you could save money with an electric car. If you reside in a state with stimulus incentives and in a locality with low to moderate utility rates, you have a leg up. And if you commit to driving the vehicle in reasonable conditions and following electric vehicle best practices, you could maximize your investment.
About Eric Brown
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