Economics of Electric vs. Gas Vehicles

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Besides buying a house, the average person’s biggest purchase is a car. So when you go to make that large purchase, shop around. Many factors, like cost, maintenance, gas mileage, depreciation, etc., are considered. You want the best deal that will make sense financially.

Electric vehicles (EVs) have been in the news and are touted to make sense financially. Many believe they are more economical than gas-powered vehicles. But is that the case? What is the economics of EVs versus gas? And does it make sense to drive one long-term?

EV vs. Gas Vehicle Price

Electric vehicles are still relatively in their infancy. So just as that first computer you owned was thousands of dollars, so are EVs. Expect to pay $10,000 or higher for an EV than you would a gas vehicle.

For example, the Hyundai Kona retails for $22,595, while the Hyundai Kona Electric goes for $35,295. If you’re into trucks, the Ford F-150 is $40,960, while its electric cousin, the Ford F-150 Lightning, runs $54,769.

You’ll also need to purchase a Level 2 charger. This will cost $2,000 for parts and installation.

So, your overall upfront costs will be higher with an EV than with a gas vehicle. But the tax credit available will bring that difference down, right?

Selective Tax Credits Available

The Inflation Reduction Act provided for a $7,500 tax credit when you receive delivery of a new EV. It’s known as the Clean Vehicle Credit. But there are stipulations to receiving the federal tax credit.

For instance, it depends on your adjusted gross income (AGI) if you qualify. According to the Internal Revenue Service, you may not exceed the following:

• $300,000 for married couples filing jointly
• $225,000 for heads of households
• $150,000 for all other filers

Some states will also give tax credits for purchasing EVs. But that is not the norm in most of the country. Here’s an interactive map that lets you know about your state.

There is also a stipulation as to what EV is eligible to receive the credit. Vehicles must have final assembly in North America. So, you’ll need to verify that the vehicle you want to buy was actually built in North America. You can do this with the VIN (vehicle identification number) decoder.

Maintenance Costs on EVs and Gas Vehicles

No vehicle is maintenance-free. Even EVs have yearly maintenance. The average EV vehicle maintenance averages $0.06 per mile. In comparison, the gas vehicle averages $0.10 per mile. So, there’s a cost saving on maintenance with an EV. And over the average five-year vehicle loan, this can add up for the gas vehicle.

EVs, however, are prone to software glitches, more so than mechanical components. Gas vehicles are prone to mechanical issues.

Fuel Costs for EVs and Gas Vehicles

Gas prices versus electricity prices, right now electricity is leading. When you change your EV at home, you can take advantage of lower-priced times, like overnight. The U.S. average electricity cost is $0.126 per kWh (kilowatt-hour), and it takes up to eight hours to fully charge a battery. That lower cost makes EVs attractive.

But gas isn’t the only commodity on the rise. Electricity prices have spiked. And if you are taking a long-distance trip, you'll probably want to use the supercharging stations. Supercharging prices appear to have increased.

Tesla-owned stations, which once claimed not to make any profit from charging stations, rates are increasing. Prices in the United States are up to $0.58/kWh.

Public charging stations charge by the hour, no matter how much electricity you use.

Depreciation Cost of EVs vs. Gas Vehicles

Electric vehicles depreciate much faster than gas vehicles. In the United States, a new sedan will depreciate 39 percent after three years, while trucks depreciate roughly 34 percent.

But an EV will drop 52 percent in that same period. Tesla is the exception and drops comparable to a gas vehicle.

This makes reselling your used EV a little difficult, especially if you’re upside-down in your loan. Teslas are much more valuable in the secondary market.

One reason the depreciation is so significant in EVs is the battery. The battery has a finite life expectancy, and a used EV may have a diminished life remaining.

Lifespan of EV vs. Gas Vehicle

Electric vehicles use lithium-ion battery packs. These are the same batteries you have in your cell phone or laptop. These batteries have a greater energy density and hold a charge longer than a traditional lead-acid gas car battery.

An electric car’s battery capacity is defined by kilowatt-hours. The more your EV has, the longer you can go. It’s comparable to a gas vehicle’s tank size.

EV batteries in the United States generally come with a warranty on the battery for eight years, or up to 100,000 miles. But check the individual car company you’re purchasing from. Some offer better warranties.

Although the battery is generally viable for a minimum of 10 years, several factors influence its longevity. Lithium batteries don’t like heat and degrade faster in hotter climates. Cold weather can also degrade the battery.

Charging at a Level 3 station has its wear and tear on a lithium battery. The process can overheat it.

The optimal temperature for an EV is 70 degrees Fahrenheit. Manufacturers install cooling devices to manage the battery’s temperature.

And if you need to replace your battery, it'll cost you. It can cost between $5,000 and $15,000 to replace a battery pack.

Insurance Rates Comparison

Insurance is pricier for an EV. This is partly due to the higher cost. But in general, EVs have higher repair costs, especially true for those expensive technology features.

If an EV is totaled, it will cost more to replace than most gas vehicles. Likewise, even minor damage to a battery will mean an expensive replacement.

EV vs. Gas Vehicle

There are pros and cons to both vehicle types. For example, an EV’s high upfront costs may be balanced by lower maintenance and fuel costs. But you could be in for sticker shock when your battery wears out and is no longer under warranty.

The Epoch Times Copyright © 2022 The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.