Is It Worth Getting Amped Over Electric Vehicles?
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In the market for a new car? Before you give your next car purchase the green flag, you might want to take the time to run the numbers on an electric vehicle.
As you consider your options, you may come across an electric version of your favorite car. Electric versions of popular vehicles are not just a fad. Volvo plans to phase out all gasoline-powered passenger vehicles by 2030 and GM plans to do the same for all vehicle lines, excluding trucks, by 2035.
Turn 1: Purchase Price – Higher
Be prepared to pay more upfront when purchasing an electric vehicle. Electric vehicles have historically had a much higher sticker price than gasoline-powered alternatives. That’s mainly because the batteries that power electric cars and the complimenting technology are more expensive.
However, purchase prices have come down as manufacturers have scaled production and battery prices have decreased. Industry experts anticipate that trend will continue, but it will likely be some time before electric vehicle prices are competitive with a similar gas-powered vehicle.
Turn 2: Daily Costs – Lower
This is where the consumer has been trained to expect lower operating costs for electric vehicles, but let’s see how the math works out.
Gas prices and energy costs are moving targets, but we can use current averages to get a general comparison. According to AAA, the national average price per gallon for gas is $3.53. So a vehicle with a 15-gallon tank will cost $52.95 to fill up. The miles to the gallon will vary from car to car, but if you get 20 miles to the gallon, driving your car costs $0.176 per mile.
According to the US Energy Information Administration, the average price per kilowatt-hour in the Midwest is $.1467. This number varies from state to state, so be sure to factor in your local cost in your analysis. If your electric vehicle uses 40 kWh every 100 miles, driving that car costs $.058 per mile. The availability of public charging stations could reduce this even further.
So far, electric vehicles have a higher purchase price but cost less to drive on an ongoing basis.
Pit Stops: Maintenance – Potentially Lower
No one likes maintenance, but it’s part of owning a vehicle. Gas-powered cars need oil changes, new belts, and fluids replaced. Electric cars have significantly fewer moving parts than gas-powered cars and therefore have fewer parts that could break or require maintenance. Think of electric cars more like giant computers with wheels.
According to Consumer Reports, consumers save an average of 50% on repair and maintenance costs when comparing gas-powered vehicles to electric vehicles. Don’t get the wrong expectations, though. When something breaks on an electric vehicle, it tends to be expensive because many of the parts are pricey electronics. Hitting a pothole in an electric vehicle might hit your bottom line more than you would like!
Fast forward ten years: Gas-powered vehicles have needed a fair amount of maintenance up to this point, but it might be a few thousand at a time, depending on the underlying issue. Electric vehicles haven’t required the same amount of maintenance over that time, but at around ten years, you probably need to replace your battery. Today that could cost you anywhere from $6,000 to $10,000 or more. Overall, a new battery may still be less than a gas-powered vehicle’s total maintenance cost, but rolling that cost into one expense is something to be expected.
Turn 4: Insurance – Potentially Higher
Get a quote from your insurance company for the cars you are considering. While various factors influence individual insurance premiums, coverage for electric vehicles can be about 20% more than gas-powered counterparts. It boils down to electric vehicles being built with electronics that are more expensive to repair.
Final Straightaway: Tax Incentives
To help offset the purchase price of an electric vehicle, the IRS offers a nonrefundable tax credit of up to $7,500, depending on the manufacturer and vehicle’s battery size. Make sure you do your research here!
Once a manufacturer sells 200,000 electric vehicles, the credit phases out over the next four quarters. The credit is reduced from $7,500 to $3,750 in the second calendar quarter until the end of the third calendar quarter after hitting the 200,000 car threshold. After that, it is reduced again to $1,875 for the next two quarters and then drops to $0.
Note: At this point, both Tesla and GM vehicles are no longer eligible for the federal tax credits.
What happens if you order a car, but delivery takes several months, and the tax credit is reduced while waiting? The tax credit is applied when the vehicle is titled in your name; the order date does not matter.
Some states have additional tax incentives or benefits available. Check with your state or tax advisor.
Finish Line: Do Your Homework
Several factors go into the decision on what type of vehicle to purchase. If an electric vehicle is on your shortlist, make sure you do the math, so you know what to expect. You can also refer to The US Department of Energy’s website. They have a calculator that consumers can use to compare the total costs of multiple vehicles. Spend the time to analyze your options before buying so you can enjoy your victory and drive off into the sunset.
Sarah Mahaffa, CFP, is a Senior Wealth Advisor and Manager of Financial Planning with Bedel Financial Consulting, Inc., a wealth management firm located in Indianapolis. For more information, visit their website at www.bedelfinancial.com or email Sarah at smahaffa@bedelfinancial.com.