Industry Insights

Electric Vehicles Hit Buyers’ Wallets Hard: Environmentalism Must Be Affordable to Be Effective

Reading Time: 5 minutes

Electric vehicles powered solely by batteries are touted as cheaper to fuel and maintain than internal combustion (ICE) vehicles and produce lower emissions that help save the planet. However, underlying facts do not fully support these claims.

Electricity is not free and most estimates place the fuel savings of EVs over gasoline powered vehicles at approximately $725 per year for the average driver.

Routine repair and maintenance savings of EVs versus ICE vehicles average $320 annually, with most of these savings among vehicles at least six years old. However, the big cost of battery replacement can send EV repair costs sky high.

The strongest case for electric vehicles is their low emissions. However, the lower emissions of EVs are offset in part by the emissions caused by burning fossil fuels to produce the electricity to recharge EVs.

Two Big Costs of Electric Vehicles

In addition to the fuel and maintenance savings and emissions reductions of EVs being less than what they might first appear to be, electric vehicles have two big costs that can hit buyers’ wallets hard.

First, the average new electric vehicle costs thousands more than a comparable internal combustion engine (ICE) vehicle.

Most estimates place the purchase price of an electric vehicle at approximately $6,000 higher than an ICE vehicle. These estimates generally take into account Federal and State rebates, but even with rebates evidence shows that the actual cost difference is often greater.

The purchase price of electric vehicles can be as much as 50% to 60% higher than that of similar internal combustion engine (ICE) models. EVs also depreciate at a much more rapid pace than ICE vehicles.

Second, there are even greater differences between the depreciation costs of EVs and ICE models. The typical ICE vehicle still retains about half of its original value after five years. In contrast, it is not uncommon for an EV to lose 70% or more of its value in five years.

This means that an EV may shed an additional $5,000 to $10,000 of value in five years compared to an ICE vehicle. This difference in depreciation continues so that after ten years an EV will lose even more in value than a comparable ICE vehicle.

Four Hidden Costs of Electric Vehicles

Four additional costs can drive the cost of EV ownership ever higher.

First, the elevated prices of EVs compared to ICE cars and light trucks add significant financing charges to their purchase and thousands to upfront lease payments.

Second, unless public charging stations are available (something that is not common in most areas), EV owners must install a home charging unit. These costs can range from $700 to more than $3,000, depending on the home owner’s electrical system and the unit’s voltage (higher voltage means faster charging).

Third, replacing an EV’s battery can be very expensive. There is a wide range in battery replacement costs by make and model of EV, some of which top $10,000. An extreme case is the Chevrolet Bolt, whose battery lists for over $15,000 plus installation. This means that some older EVs might be scrapped because of the high cost of battery replacement.

Fourth, body repair costs can be astronomical for some EVs, especially Teslas, which currently account for over two-thirds of EV sales in the U.S. Tesla owners sometimes must wait months for body parts, with repair costs many times that for comparable ICE vehicles. This can greatly increase the cost of insurance for some electric vehicles, with Teslas’ insurance often $2,000 or more per year higher than for a typical car.

Reaching Break Even and Leasing

It can take 8 years to “break even” when buying an EV, given the ordinary costs of ownership. In many cases, it can take even longer, especially when the hidden costs are considered.

Since the average vehicle ownership period is less than six years (and there is evidence that EV ownership is even shorter), most EV buyers will not own them long enough to break even. They will spend a premium of $5,000 up to $15,000 or more compared to an ICE model for owning an electric vehicle for five years.

A wide range of Federal and State tax rebates are available for EVs, but some rebates are now winding down as the two most popular EV models (including Tesla) have reached unit sales levels that trigger rebate reductions of up to 75% or more.

Over 75% of EVs are leased rather than purchased (nearly triple the lease frequency of other vehicles). This is due to the high costs of EVs (half of those acquiring EVs in the U.S. earn over $200,000 annually) as well as the absence of moderately-priced EVs (with significant operating range) that are widely available to entry-level new vehicle buyers.

Electric Vehicles Must Be Affordable for Their Environment Benefits to Reach Wide Groups of Buyers

Despite the benefits of EVs over ICE vehicles, sales of EVs in the U.S. have lagged far behind predictions of just a few years ago. During 2018, electric vehicles accounted for just 1.5% of total cars and light truck sales in the U.S. During the next three years, their sales are expected to increase, but they will not reach the high levels predicted by some analysts.

The exceptionally large percentage of EVs that are leased reflects not only the high price of the average electric vehicle, it also underscores the desire of consumers to avoid some of the negative and expensive aspects of EV ownership, especially their high rates of depreciation and the potentially large expense of battery replacement. EV owners also want to keep up with the latest technology.

While leasing may provide a solution to some costs of EV acquisition, it does not address other hidden costs such as the high rates of insurance, the need for home charging units and the high down payments that many EV leases require.

The only solution that will enable the environmental benefits of EVs to reach wide groups of buyers is the availability of long-range, low-priced EVs, something that a number of car manufacturers say will be very difficult to produce at a profit.

Key Issues: Snapshot

Click a star to rate this article
[Total: 16    Average: 4.4/5]
Author

Jim Lang

Senior Market Advisor to CarParts.com

Jim Lang has more than 25 years of experience in the vehicle products industry. His work has gained wide recognition and covers all aspects of the U.S. aftermarket: consumers, cars and light trucks, repair outlets, distribution channels and Ecommerce. Jim has earned the reputation as a thought leader and had received a number of industry awards. For more than 20 years, he has produced the Lang Aftermarket Annual, which is a must-read throughout the industry.As President of Lang Marketing, Jim heads up a team that has developed the industry's largest database of auto parts information and analysis. They are constantly fielding new studies that cover the complex and rapidly changing vehicle products industry. The Lang Marketing team has produced over 500 reports on the vehicle aftermarket and they provide strategic marketing information to companies and individuals in all sectors of the vehicle products industry worldwide.

File Under : Industry Insights