Does It Make Financial Sense to Buy an Electric Car?

With the price of gasoline skyrocketing, you might wonder if it’s time to buy an electric car. Carmakers from BMW to Subaru are releasing new models in 2022, so you have a larger selection than ever to choose from. But does buying an electric vehicle make financial sense for you? Here are points to consider:

Purchase Price

Electric cars are priced higher than their conventional counterparts. This price difference is expected to shrink with time, but right now, there is still a gap of thousands of dollars.

However, the federal tax credit for buying electric vehicles can help reduce that gap by up to $7,500. (Note: EVs from Tesla and General Motors are no longer eligible for the deduction.) You may also be able to take advantage of state, municipal, and utility incentives. Try entering your zip code at the PlugStar website to find out the incentives you are eligible for.

On a related note, your car insurance policy will probably cost more with an electric vehicle. Bankrate attributes this to the higher purchase price and higher repair costs.

Fuel

It almost seems unfair to compare gas and electric costs when gas prices are sky-high. We don’t know how long the run-up in gas prices will last or how much they will come back down, but it’s also true that electricity costs have increased too.

A CNBC analysis in March 2022 looked at national averages between February 2019 and February 2022. It was cheaper to charge an electric vehicle than fill up a gas-powered car in each month of that period. 

You can use a standard 120-volt outlet to charge your EV, but the process will be slow. You can also buy a 240-volt charging station and have an electrician install it. The charger can cost $500 -$800, and the installation can go for $800-$2,000, according to Qmerit. This will offset your fuel savings, so you will want to assess whether you plan to keep the car long enough to make the purchase worthwhile.

Maintenance

Kelley Blue Book says that repair costs are higher for EVs because of their newness, and predicts expenses will come down over time. However, EVs are already cheaper to maintain because their engine has a single-speed transmission and fewer moving parts. You won’t have to worry about oil changes, transmission fluid flushes, new spark plugs, and a host of other regular service needs you may be used to.

Rather, your service visits will generally focus on tire rotation, brake pad checks, windshield wiper replacement, etc. This means fewer dollars spent on maintenance.

You may want to budget for battery replacement. Consumer Reports says that EV batteries have around 2% of range loss per year:

“EV batteries can be serviced and individual cells inside the battery can be replaced if they go bad. But there’s the risk after many years of service and several hundred thousand miles that the entire battery pack may need to be replaced if it has degraded too much. The cost can be between $5,000 and $15,000 and is akin to an engine or transmission replacement in a gas car.”

EV batteries generally have a warranty for at least eight years or 100,000 miles.

Lifestyle Considerations

Lifestyle often plays as crucial a role in purchases as the financial “cents.” When it comes to electric cars, these vehicles retain a certain cachet of ownership, as this Forbes article points out.

They also appeal to the environmentally minded. The same Forbes article reports findings by the Union of Concerned Scientists that EVs contribute less pollution than their gas-powered counterparts in all 50 states.

Another factor to consider is the driving range of electric vehicles, generally between 200 and 300 miles before you need a charge. You may opt for a conventional car if you often drive long distances. If your usual trips are less than 200 miles (like around the city), an EV may be a good bet.

This material was prepared by Kaleido Inc. from information derived from sources believed to be accurate. This information should not be construed as investment, tax or legal advice.

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