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.
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
- Lower fuel costs of electric vehicles, their more economical repair, as well as lower emissions are generally not as great as might be expected.
- The purchase price of electric vehicles can be as much as 50% to 60% higher than that of similar internal combustion engine models.
- Electric vehicles depreciate at a much more rapid pace than ICE vehicles.
- Other hidden cost of owning and operating electric vehicles include higher financing and leasing charges, expensive home charging units, battery replacement costs that can total thousands of dollars, as well as very high body repair costs that cause insurance rates to balloon.
- Electric vehicles, despite being touted as the salvation of the automotive industry as well as the planet, will account for only approximately 2% of new car and light truck sales in the U.S. during 2019.
- Most EV sales, up to 75%, are accounted for by Tesla, with half of those buyers earning more than $200,000 annually.
- Electric vehicles must be more affordable so that their environmental benefits can reach wide groups of buyers.
- The solution is an abundance of low-cost, long-range EVs, something that carmakers say will be difficult to provide, at a profit, to U.S. consumers anytime soon.