EV Economics

EV Economics

The most important factor for many consumers purchasing a vehicle is cost. So, let’s dive in and look at whether EVs or ICEVs are cheaper.

Total Cost of Ownership

Calculating true costs is a complicated and political space. The most honest analyses aim for a Total Cost of Ownership (TCO), sometimes called a Levelized Cost of Driving (LCOD). These try to include as many real-world factors as possible. They can include average driving patterns, purchase price, maintenance costs, driving costs and more. Every cost analysis will use different methodologies which can affect conclusions, so be sure to understand the assumptions and data sources each analysis uses.

Purchase cost is the all-in price of purchasing the vehicle, including all taxes and incentives. Electric vehicles are relatively new, and the competition is not as fierce as the traditional car market. Also, the costs of developing the new technologies needed in EVs is high. These factors translate to generally higher purchase cost. PHEVs (like the Toyota Prius) tend to be the lowest cost EVs. FCEVs are expensive today, with only 3 available in the US (only in California) and the cheapest costing over $50,000 USD.

Maintenance cost includes any costs to upkeep the vehicle (whether related to the electric components or not). EVs have far fewer moving parts and consumables (like oil and filters) and regenerative braking (which can help any electric vehicle including HEVs) extends the life of brakes significantly. This all translates to lower maintenance costs.

Driving costs are the cost per distance to drive the vehicle. This would be the cost of gasoline for ICE vehicles, cost of electricity for BEVs and cost of hydrogen for FCEVs. BEVs have the lowest driving costs (~$0.06/mile), then gas (~$0.13/mile), and FCEVs cost the most ($0.21/mile). FCEV prices come from California as they are not available in most localities.

Other costs can include a gamut of other fees, like insurance, taxes, registration fees, and even emissions testing, and vary highly depending on where you are.

Now that we understand what goes into calculating Total Cost of Ownership, let’s look at some current analyses:

  • Consumer Reports (in USD) showed that although EVs typically cost more to purchase, the lifetime ownership costs were much lower. Most EVs offered savings from $6,000 to $10,000. This analysis adjusted for currently available federal incentives. Reliability surveys showed that BEVs and PHEVs saved 50% on repair and maintenance costs over the vehicle life. BEVs were estimated to save 60% on fuel costs as compared to average ICEVs in their class. The analysis compared the 9 most popular EVs to each of the best-selling, top-rated and most efficient ICEVs in their class. They found new EVs typically cost less over their lifetime than similar gas-powered vehicles, “a new development in the automotive marketplace with serious potential consumer benefits.” They further found that 5- to 7-year-old used EVs had 2–3X more cost savings. [Consumer Reports, 2020]
  • Self Inc. (in USD) concluded that TCO over the life of an EV is cheaper than a gas vehicle. However, it also shows that the TCO/year for gasoline cars is cheaper when including purchase cost. They spread out the purchase cost over the first 6 years of ownership. They included fuel, energy, mileage, insurance, EV incentives, taxes, registration fees, maintenance, emissions tests and more. The average cost of an EV was $9,406/year when including purchase price, and then drops to $2,722 afterwards. The average cost of a gasoline vehicle is $7,952 each year and then drops to $3,356 afterwards. [Self Inc, 2020, additional commentary at Green Car Congress]
  • The Canadian Energy Regulator (in CAD) concluded that the purchase prices of EVs are more expensive, but the driving and maintenance costs are cheaper. They state that if technology continues to improve, purchase costs will fall to the point where they are comparable or even lower than that of equivalent ICE vehicles. This would result in a LCOD that strongly favors EVs. For cars, the LCOD is slightly cheaper for EVs, with EVs costing $0.33/km and ICEVs costing $0.34/km. For trucks, the reverse is true and the LCOD is slightly cheaper for ICEVs, with EVs costing $0.44/km and ICEVs costing $0.42/km. [CER, 2019]

In general, it looks like EVs cost more upfront than ICE vehicles, but their maintenance and driving costs are lower. If EV purchase prices continue to drop as expected, we are at an inflection point and EVs will be cheaper in every way than ICEVs in the very near future.

I recommend reading the source reports for all sorts of interesting details. You can also do your own comparisons with the Alternative Fuels Data Centre Vehicle Cost Calculator [US Department of Energy].

Resale & Depreciation

I often hear anecdotal claims that EVs depreciate less than ICEVs. The hypothesis is that a lack of competition and low supply paired with high demand should result in high priced in the used market. This appears to only be true for Tesla. Consumer Reports [2020] found that both BEVs and PHEVs are expected to depreciate at the same rate as ICE vehicles in the same class over the first five years of ownership. iSeeCars [2020] analyzed 6.9M car sales and showed that all EVs except Teslas depreciated faster than cars overall. The Tesla Model 3 was particularly impressive as the lowest depreciating car overall, only dropping 10% in value over 3 years. This may be a signal of extra high demand for this car. With more competition and availability of vehicles one would expect deprecation rates to return to normal levels.

Subsidies & Incentives

Most countries or regions offer financial incentives to buy EVs. They can be tax credits, tax write-offs, rebates and other incentives. They vary based on the locality and properties of the vehicle.

Subsidies and incentives get raised all the time as arguments against electric vehicles, with the claim that EVs wouldn’t happen without government help. In reality, new industries and technologies typically need subsidies to get over the initial research and development (R&D) costs before demand rises, and EVs are no different. We need to have an honest discussion about how much we should subsidize EVs as well as associated industries like battery manufacture and charging network construction to accelerate development. We also need to consider how much we currently subsidize fossil fuels and ICEVs and by what mechanisms.

Next, on to Performance!

Header image credit: Alexander Mils
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