I’ll be the first to admit; I’d love a shiny new Tesla Model S charging in my garage in an attempt to save myself the agony of filling up my large truck. For many this is the case, we drive larger less efficient vehicles for many reasons. After a while, the allure of a new vehicle wears off and the lack of fuel efficiency and overall cost of ownership have many looking to alternatives. I currently drive a large diesel Ram 3500 Mega Cab Dually and average a whopping 13mpg (ouch!). We tow a large RV often being a dually a set of (6) tires on my aftermarket 22” wheels is north of $3,000. Add to that I’m lucky to get 30,000 miles out of them and it’s one costly vehicle to drive every day.
Your vehicle is likely less painful to drive, but you know you can do better. For most the decision is to purchase a second far more fuel-efficient vehicle to do the bulk of your driving, saving your existing gas hog for family outings or weekend trips (my current plan). Others ditch the inefficient vehicle altogether. Both options are great, however, if your goal is to save money driving the initial cost of purchasing an all-electric vehicle are still quite cost prohibitive.
There are more all-electric vehicles available now than ever before, and the list keeps growing. It seems feasible that one day ALL cars will be electric but for now they are still in their fledgling stages and far more expensive than their gas-powered counterparts. The tax incentives for new electric vehicles help to offset those differences but don’t entirely bridge the gap, and those incentives could soon end.
We’re going to make some assumptions here. You’re reading an article about saving money on gas and may be motivated by the environment, or you’re an average American who isn’t in a position to pay cash for a new or even a used car. You likely have credit card debt, maybe school loans and more. Regardless of your exact situation, the vast majority of our country can only purchase a new vehicle using credit with increasingly extended periods of repayment. The day you own your car outright and reduce your debt is the day your life will become freer, and this article is a path to that end.
With any decent job and reasonable credit score you can head to your local dealership and likely drive away a shiny new electric car today. It’ll be cheap to charge and you won’t be stuck buying gas but you will be stuck with a rather sizable car payment and a quickly depreciating asset. Regardless of the make or model you purchase (Tesla, Chevrolet, Toyota and more) your new car is immediately worth significantly less than you bought it for and will only continue to decline rapidly. Electric vehicles will continue to depreciate faster than their gas-powered counterparts in the coming years because the technology is changing so quickly your new car is outdated almost overnight. New vehicles are released every year, and with more manufacturers getting involved the competition is fierce. As the range between charges increase and the prices come down year after year you’ll still be stuck with that monthly payment on a now relic of automobile technology. If history repeats itself, you’ll trade it in and upgrade, likely carry over the negative equity in the car into the new loan and the cycle repeats itself. Odds are you may never actually ‘own’ a car you’ve bought, and eventually, the debt becomes so high you’re stuck with a vehicle you cannot afford. Quite common believe it or not.
Is an electric car the solution to driving cheap?
While a new all-electric car may average near 100MPGe (miles per gallon equivalent) and be inexpensive to charge, that’s just one piece of the puzzle. What really matters is the cost per mile to own. Everything else becomes sales pitches and numbers on a screen. Let’s make this easy to understand, and you’ll see why we’ve decided to go hybrid, rather than electric only.
First off, it doesn’t really matter which car you’re considering, the initial purchase of an all-electric vehicle on the low end is an MSRP of $30,000+, most starting near $35,000. That said few of us genuinely purchase the bare bones car, and those options add up fast, so do all of the other fees when buying new. You’ll almost certainly have some form of the following; tax, title, dealer doc fees, delivery, extended warranty and more. Your $35,000 new car often leaves you signing a loan for over $40,000-$50,000 (or more!). We’re not even considering higher-end options like a Tesla Model S or X, both of which can quickly become $150,000 vehicles.
Now let’s be VERY optimistic with our calculations here and assume you purchase a new all-electric vehicle and after taxes, fees, registration, warranty and more and end up paying only $30,000 out the door after the federal tax incentive (which may or may not exist shortly). Let’s also assume that vehicle gets an EPA estimated 100MPGe (some get better, some get worse, but we’re trying to keep things simple). Let’s also not factor in tire wear, because regardless of the compact fuel-efficient vehicle you purchase they will all wear tires at relatively the same rate. Yes, there can be a difference in cost based on size and style of the tire but again in the same category of vehicles such as this, the difference is insignificant in the grand scheme of things. Tires go on sale all the time, and many last longer than the theoretical time and mileage we’re going to examine.
Let’s also assume you keep the car for five years and drive 60,000 miles, ‘average’ by all accounts. At the end of 5 years, you’ll have spent $2,406 on electricity (using Tesla’s math on the model S which should be relatively accurate). Add the $30,000 original purchase, plus the rather expensive annual registration fees on a new car. Let’s average those at $250/year (your cost may vary).
Total spent – $33,656. Keep in mind you likely still owe far more for the car than it’s worth, and you’ve been paying interest on the money you borrowed the entire time. At this point, what is the car worth? Optimistically say $15,000, remember your car is now five years old and all-electric technology is vastly superior. Your car now has 60,000 miles and is nearing the end of its warranty (manufacturer dependent). New all-electric vehicles cost less than they did five years ago, they go further between charges, and they cost less to maintain as the technology has matured.
Keep in mind all of the figures above are not set in stone, but they ARE optimistic. So, how’d your electric car do? Let’s again assume you sell your car for $15,000 after the five years (or more likely trade it in for substantially less destroying any chance of so-called ‘efficiency’). Well, to go 60,000 miles in 5 years it ended up costing you $33,656 – $15,000 (after selling your car) = $18,656. Now we divide that by the 60,000 miles you drove and come to a cost of 31 cents per mile. Not bad, but, watch how much better it could be.
What’s the alternative?
As a long time mechanic, I’ve bought and sold many vehicles, 79 to date and I’m 31. I’ve purchased all used, and it has saved me countless thousands of dollars. I escape the radical depreciation of a new vehicle, and sales tax (8% of $30,000 adds up!) right off the bat. I’m also able to understand the reliability of a vehicle much more after seeing their flaws come to light in the real world. The new car buyer learns as they go, which can become quite expensive. We can all assume a brand is reliable, but time tells the true story for any specific model, every manufacturer has their flops.
As of late, I’ve been researching a replacement vehicle for the wife’s 2006 Subaru Outback, which has been a great car. It’s approaching 200,000 miles and while it likely has another 200,000 left but she wants to save money at the pump and not worry about the future maintenance of the higher mileage car. To be fair, the car has been extremely reliable and never left her stranded. We’ve only had to replace the parts you’d have to replace on any car: brakes, tires, belts, oil changes, fluids, and air filters. Nothing has broken, it’s never stopped and again will likely continue for years. That said, she averages 25mpg and has driven 45,000 miles in a year and a half!
Being that she has a reliable vehicle we had a fantastic opportunity, the ability to take our time searching for the right vehicle. Often consumers wait until their car is on its last leg and are forced to make a quick decision resulting in an overpriced, under-researched vehicle. After looking for months, we decided on a 2008 Toyota Prius that we purchased from the original owner with 113,000 miles. It appears almost new, exceptionally well maintained and very clean. I did quite a bit of research into the Prius reliability and was shocked to find out they are seemingly bulletproof. They’re commonly used as Taxi’s because of their reliability and low cost of ownership; they’re based on proven technology and often come with features only found in higher end/more expensive/newer cars. Ours came with a touch screen, navigation, hands-free calling, keyless entry and even a push start without having to insert the key. These were of course just bonus items that didn’t ‘make the sale’. Aside from heated seats, the car has all the bells and whistles of a brand-new hybrid in its class. It’s comfortable, has quite a bit of storage and is all around an enjoyable vehicle. The seller was asking $7,000, and after a test drive and some negotiation, we were able to drive it home for $6,400. We paid cash, but ultimately most would be able to secure financing for such a little amount with ease. If you go that route, I’d highly suggest securing financing before shopping. Good deals on good cars don’t last; you won’t have time to apply for a loan, someone else will show up with cash before you’ve made a deal.
We decided we would put new tires on it immediately. They weren’t a requirement, but with a current deal at Costco and the $600 savings from the asking price (which we would have been willing to pay for such an immaculate car), it was an easy decision. The tires came with an 80,000-mile warranty and were only $356 out the door! The previous owner had the car detailed and all maintenance work completed. No leaks, squeaks or anything needing attention, even came with a brand-new set of tire chains for winter driving. So, let’s break down our expected cost of ownership on this car for the same five years, 60,000 miles.
The registration was $91, a savings of $159 per year over the new car. The Prius averages 46mpg, and in 60,000 miles we’ll use an estimated 1,305 gallons of gas. Using an average gas price of $3.00 per gallon (currently can be had for $2.79 here but it does fluctuate), this equates to $3,915 in gas over the five years/60,000 miles. We’ll even add oil changes to the cost, which the Prius only requires every 5,000 miles and we do ourselves in about 5 minutes at a cost of $14 or less, totaling $168 in our example.
Total spent – $10,938. Now keep in mind, we’ve also paid $0 in interest, $0 monthly payments and the vehicle will likely still be worth $4,000 or more. The depreciation has slowed to a near halt and the market for inexpensive cars is great, countless people can afford a $4,000 car and pay cash, while not as many can afford the $15,000 car from the prior example. But let’s go even less optimistic for this car, let’s say the hybrid battery fails while we own it (the most realistic failure in this car, but still unlikely). We can get a replacement for $1,000 and install it in a couple of hours in the garage with basic tools. So, after this unexpected failure, where do we stand at the end of 5 years?
Total spent – $11,938 – $4,000 sales price = $7,938. Now we divide that by the 60,000 miles you drove and come to a cost of 13.2 cents per mile! A 57.5% savings versus the all-electric car. If we don’t have to replace the battery in the car, which we likely won’t, it will drop the cost to 11.5 cents per mile or a savings of 63%.
Keep in mind this doesn’t include the significant savings in insurance premiums on an older car (the vehicle is less expensive for the insurance company to replace if crashed), and we were very optimistic with the numbers regarding the new all-electric car. We also did not factor in the cost of borrowing the money for the new car (at a low 3.11% APR you’d be looking at $2,432 in interest over the five years raising your cost even further to 35 cents per mile). The real world can be much harsher than these numbers.
As you can see, even with the most optimistic results the cost of driving that new all-electric car is 2.5 times higher than a used Prius. Or, with more realistic numbers it’s more than three times the cost. That’s a HUGE difference. The cost difference over five years is $13,234, more than enough to pay my mortgage for an entire year or buy two more Priuses. Maybe you’re not a homeowner and driving a used Prius for the next five years could be your way out of debt or your path to home ownership?
That my friends is why we’ll be driving a used Toyota Prius rather than buying a new all-electric (or any new car for that matter), vehicle and saddling ourselves with a monthly payment on a depreciating asset. Who knows, maybe in 5 years we’ll sell our old Prius and buy your used all-electric car with the money we’ve saved.