Hybrid and electric vehicles typically have a higher initial purchase price compared to their gasoline counterparts, but they can also offer significant savings over time.
For those contemplating a change, our friends over at Experian break down whether an electric or hybrid vehicle can really save you money. And, if so, how much.
Upfront Costs:
Across all vehicle types, the average monthly car payment is $729 for new cars and $528 for used cars.
Finance folks typically recommend car buyers spend less than 10% of their take-home pay a month on a vehicle purchase, so if we use that as a rule of thumb, car buyers would need to net about $7K a month to afford the average new vehicle these days. That assumes a gross income of about $110,000 a year.
But, EVs are typically more expensive purchases leading to even higher monthly payments – around $1034/month for EVs and $771/month for hybrids.
You don’t exactly have to be Scrooge McDuck to buy an EV these days, but they likely won’t fit into the budget of most US household incomes which bring in around $65K annually.
Which means that only about 15% of US drivers can even afford a new set of wheels, let alone a new EV or hybrid.
Long-Term Expenses:
The cost of owning a vehicle goes beyond the monthly car note, so it’s important to consider fuel prices, maintenance, insurance, and all that other boring stuff that costs money.
The largest cost reductions would occur in the South and West, while a small share of households in Alaska, Maine, Massachusetts, Michigan, and Rhode Island, would actually see their energy costs rise by switching to an all-electric car.
The largest cost reductions would occur in the South and West, while a small share of households in Alaska, Maine, Massachusetts, Michigan, and Rhode Island, would actually see their energy costs rise by switching to an all-electric car due to their region’s higher energy burdens.
(Find more electric-to-fuel cost comparisons here.)
And don’t forget – where you gonna charge that bad boy? Consider the costs of installing a personal charging station if you’re looking to get your juice from home.
The average price tag is around $923 but can range anywhere from $528 to $1,317 depending on things like the type of charger, installation location, and cost of labor and permits.
Federal Tax Breaks:
Per the IRS – “You may qualify for a credit up to $7,500 under Internal Revenue Code Section 30D if you buy a new, qualified plug-in EV or fuel cell electric vehicle (FCV).”
Sounds great in theory, right?
Well…
As with most government involvement, it’s much more complicated.
The tax credit is only applicable if you qualify, and there are like a bajillion rules, so many people don’t even bother.
According to data, in 2019 only about 25% of qualified cars purchased that year claimed the tax credit. And, the average credit claimed per return was only $3,952 (a little over half the maximum amount).
The gov is attempting to up those numbers by introducing even more streamlined processes in 2024, but we aren’t holding our breath.
Extra Incentives and Drawbacks:
On top of the federal tax credit, some states offer additional incentives that could help drive down the cost of an EV or hybrid purchase, including rebates, income tax credits, and excise or sales tax exemptions.
However, many states also charge additional fees for electric vehicle owners.
Fees can range from about $50 to $300 per year with states citing reasons like a need to make up for the loss of gas tax revenue, or to help fund the expansion of EV charging stations, or simply “cause we said so.”
(Check out all the relevant laws and incentives for your state here).
Environmental Costs:
Many people switch to electric or hybrid vehicles because they care about the environment and want to reduce their carbon footprint. In fact, 35% of Americans say reducing their personal impact on climate change is a major reason they would buy an electric car.
Of course, going hybrid or electric doesn't bring your emissions down to zero. Even plug-in hybrids still require gasoline, and the electricity for charging may still be produced from fossil fuels.
However, if the environment is important to you, EVs have a slight advantage.
Long-Term Benefits:
According to a Consumer Reports study from 2020, the typical EV owner saves $6K to $10K over the lifetime of most such vehicles compared with gasoline-only models.
When comparing similar cars on total cost during ownership, “battery electric vehicles tend to come out ahead of [internal combustion engine] vehicles, on average,” said Debapriya Chakraborty, an economist and assistant professional researcher at the Electric Vehicle Research Center at the University of California, Davis.
At the End of the Day:
Electric and hybrid vehicles can save you money over time, but the financial aspects aren’t the only ones to consider.
It’s important to take the time to think about all the factors that go into owning a vehicle and how it might impact the decision to purchase a certain type.
Consumers can use various online calculators, such as one from the U.S. Energy Department to estimate their total EV ownership costs and carbon emissions based on various car models and travel habits.