Inside Clean Energy: Some EVs Now Pay for Themselves in a Year

Source: By James Pothen, Inside Climate News • Posted: Sunday, July 17, 2022

Though you’ll pay more for them at the outset, electric vehicles are now a better deal than cars that run on gasoline, due to much lower fuel and maintenance costs and a $7,500 tax credit.

A Nissan Leaf electric car being charged in London. Credit: John Walton/PA Images via Getty Images
A Nissan Leaf electric car being charged in London. Credit: John Walton/PA Images via Getty Images

Pavel Molchanov did the math so you don’t have to. He’s been analyzing numbers for nearly 20 years at Raymond James, the financial services firm. His job is to give clear-eyed advice to investors, free of politics and marketing. And his advice is this: Buy an electric car.

“What I wanted to do is provide a comparison of the economics of electric vehicle ownership based on today’s fuel prices versus what they were a year ago,” Molchanov told Inside Climate News. “Because with hundred dollar oil, as a result of the war, we understand intuitively that an [electric vehicle] makes more sense the higher oil prices get.”

Most of us think of gasoline prices in terms of dollars per gallon, not dollars per barrel. Luckily, when Molchanov did his analysis he used numbers even English majors could understand. A gallon of gas cost $3.10 in 2021, according to the Energy Information Administration. That same gallon costs a lot more this year, and Molchanov doesn’t expect things to get better. He expects the average cost for 2022 to be about $4.50 per gallon. But while gas prices have jumped about 45 percent, Molchanov expects electricity costs to increase in 2022 by just 6 percent, from 13.7 to 14.5 cents per kilowatt hour. It suddenly got a lot cheaper to charge a battery than fill up a gas tank.

Here’s why those energy prices matter: If you buy a new car today, you are going to pay more for an electric vehicle than for a comparable gas-powered car. But as you drive that electric car, you will end up paying much less money to keep it running.

There are two reasons why EVs are cheaper to operate. The first is that they have fewer moving parts and don’t require oil changes, making them less expensive to maintain. The second has to do with fuel: the cost of fully recharging the EV with electricity is less than filling up a car with gas. Those combined savings add up to eventually cover the difference in sticker price between an EV and a gasoline-powered vehicle.

“The economics of an EV for an average driver have become two times better,” said Molchanov. “So the payback period a year ago [was] between 10 and 12 years. And today it’s between five and six years.”

He’s basing this on estimates of the costs in 2021 and 2022 for a new Nissan Sentra that runs on gasoline, and a Nissan Leaf, which is all electric. This includes the costs for the vehicles, fuel and maintenance. At $27,400, the Leaf has a higher sticker price compared to $19,510 for the Sentra. But the Leaf quickly makes up the difference because of annual savings on fuel and maintenance of about $1,500.

Molchanov took his own advice four years ago when he bought a 2018 Chevrolet Bolt. But he knows most people don’t plug numbers into spreadsheets when they buy a car. Americans love gas guzzlers. And it takes high gas prices to make them go for a car with better fuel economy. As soon as prices go down, they go back to buying SUVs.

“The higher oil prices are and the longer they stay high, the better it will be for EV sales,” said Molchanov.

All-Electric Savings

But even if gas goes back to $3.10 per gallon and people hunger for big SUVs, they may not be able to find one. Carmakers such as Cadillac, Chevrolet and Volvo have pledged to phase out gas-powered cars and trucks by 2035. And the introduction of trucks like the all-electric Ford F-150 Lightning and GMC Hummer EV will create new fully electric options for buyers who aren’t ready to downsize.

Still, EVs will need to have mainstream prices if they want to join the mainstream market. Molchanov noted that both the F-150 Lightning and Hummer EV cost much more than what middle-class car buyers can afford. Car companies will need to offer multiple electric cars and trucks under the $30,000 mark. That’s the magic number that will move EVs out of the luxury category and into garages across the country, he said.

Speaking of magic numbers, there is one thing that Molchanov deliberately left out of his complicated calculations. He calls it the icing on the cake: the U.S. government is offering a $7,500 tax credit toward the purchase of a new electric car. When he put that tax credit into his model he found that an EV paid for itself in less than a year.

But hurry, the tax credit is limited. Tesla, GM and Toyota have sold enough EVs to trigger phaseouts of the credits for their models. Congress is considering a new EV tax credit that would again cover the brands that have hit their ceilings. But it is tied up in broader discussions among Democrats about a major spending package.

So, if you’ve been eyeing a Leaf or some other model that can get the current tax incentive, now is the time to buy.