Saving Money with Electric Vehicles
What Do I Need to Know?
When I started a new job in 2019, my commute grew substantially to nearly 70 miles round trip. The impact to my fuel budget was significant, and I quickly began searching for creative ways to limit my commuting costs. After doing some research, I ended up buying a 2017 Chevy Volt, a plug-in hybrid electric vehicle (PHEV), and was hooked immediately by the incredibly fun driving experience, instant torque, lack of maintenance, and unbelievable gas savings. In the last three years, I’ve become an EV enthusiast (my wife says “nerd”) and our family has gotten another plug-in hybrid as well, which has further insulated our budget from the heavy burden of gasoline now hovering around $5/gallon.
Despite the increase in prevalence and popularity of EVs, a large portion of the population is still uninformed about how these would work on a practical level. I get questions all the time from friends and family wanting to learn more about the topic and how they can save money with EVs. Here are a few of the most common:
How much are you saving? What about the electricity cost?
So right up front I will say that the focus of this article will largely be on “lower” priced EVs. I put that in quotations because the average price of all cars has risen dramatically over the past few years. In fact, the average sale price of all new vehicles in December 2021 exceeded $47,000. Although there are many fantastic EVs available which exceed $60,000, the focus of this article will largely be on EVs which are more in line with the average vehicle sale price and are more accessible to most Americans.
Now let’s dive into the numbers. Below is a breakdown of the fuel cost comparison between three popular EVs and a similar internal combustion engine (ICE) counterpart. These numbers represent the electricity or gasoline cost to drive 100 miles, assuming a gasoline price of $4.82/gallon and an electricity cost of $0.14/kwh based on the national averages as of July 2022.
Keep in mind that the electricity costs used assumes you are charging at home. If you do not have access to home charging and are regularly using public charging stations, your electricity cost will be higher (more on that later).
Fuel Cost to Travel 100 Miles*
- Tesla Model 3 vs. Honda Civic
2022 Tesla Model 3 (EV) 26 kwh/100 miles x $0.14/kwh = $3.64
2022 Honda Civic 100 miles / 34 mpg combined x $4.82/gal = $14.18
Result: EV cost is 25.6% of gasoline cost
- Ford Mustang Mach-E vs. Audi Q5
2021 Mustang Mach-E (EV) 37 kwh/100 miles x $0.14/kwh = $5.18
2021 Audi Q5 100 miles / 25 mpg combined x $4.82/gal = $19.28
Result: EV cost is 26.9% of gasoline cost
- Ford F150 Lightning vs. Ford F150
2022 Ford F150 Lightning (EV) 49 kwh/100 miles x $0.14/kwh = $6.86
2022 Ford F150 4WD 100 miles / 20 mpg combined x $4.82/gal = $24.10
Result: EV cost is 28.5% of gasoline cost
*Efficiency ratings per https://www.fueleconomy.gov
The purpose of these comparisons is not to get too deep into the details, but rather to establish a general magnitude of the fuel savings from EVs across a variety of vehicle types and sizes. As you can see, it is reasonable to assume that in general, EVs will reduce fuel costs by around 75%. According to a recent study by Yardeni Research, the average U.S. household now spends more than $5,000 per year on gasoline. That would mean that switching to EVs would reduce that amount by around 75%, saving families $3,750 annually, or around $312 per month on fuel.
In order to simplify the comparison of fuel efficiency between gasoline vehicles and EVs, EV efficiency ratings are often published in terms of “MPGe” (miles per gallon equivalent) rather than in cost per kwh. This number represents the efficiency of an electric vehicle by translating the electricity cost into a gasoline equivalent to allow an apples-to-apples comparison with an ICE vehicle.
In addition to the fuel savings, EVs don’t require much of the typical maintenance needed for an ICE vehicle as they have significantly fewer moving parts. Electric vehicles also utilize regenerative braking to slow the car by putting energy back into the battery, which greatly reduces the wear and tear on brake pads and rotors.
What is the difference between a hybrid, plug-in hybrid (PHEV), and fully electric vehicle (EV)?
There are three main types of vehicles using on-board batteries as part of their powertrain: hybrids, plug-in hybrids (PHEV), and fully electric vehicles (EV). In general, there seems to be a lot of confusion about the differences here, and manufacturers frankly have not done a good job in educating the public about the various options and what might work well for the average consumer. PHEVs in particular have not been well marketed and are largely misunderstood by many. Here is a quick breakdown:
Hybrid vehicles are essentially gasoline powered vehicles that use a small on-board battery to increase efficiency from regenerative braking. They cannot, however, at any point in their operation be driven solely on electric power. Hybrids typically get between 48-60 mpg, which is not nearly as efficient as plug-in options. Because of this, hybrids will not be a primary focus of this article.
Plug-In Hybrids (PHEV)
If a hybrid and a fully electric vehicle had a baby, it would be a PHEV. These vehicles can be plugged in and driven in full EV mode but will automatically switch to hybrid mode and run on gasoline after the electric mode range runs out. The electric range on most PHEVs is normally between 30-50 miles, and range anxiety is never a factor as they also can run on gasoline whenever needed. My wife and I almost always use our PHEVs in EV mode and simply plugging in while at home allows us to rarely buy gasoline. PHEVs can be a great stepping-stone option for people transitioning from ICE vehicles to electric.
Some PHEV Models to Consider:
Toyota Rav 4 Prime MSRP $40,300* 42 mile battery-only range 94 MPGe in EV mode
Kia Niro PHEV MSRP $29,590* 26 mile battery-only range 105 MPGe in EV mode
Hyundai Tucson PHEV MSRP $35,400* 33 mile battery-only range 80 MPGe in EV mode
Ford Escape PHEV MSRP $35,455* 37 mile battery-only range 100 MPGe in EV mode
*MSRP is starting price only and does not include any potential tax credits.
Electric Vehicles (EV)
Full EVs have just an on-board battery and electric motor. They are fueled 100% by electricity. They are the most fuel efficient and typically can achieve between 115-150 MPGe, usually with a total range between 250-400 miles. These vehicles can be charged at home or at a DC (direct current) fast charger when traveling.
Some EV Models to Consider:
Volkswagen ID.4 MSRP $41,230* 280 mile range 112 MPGe
Ford Mustang Mach-E MSRP $44,995 247 mile range 103 MPGe
Chevy Bolt EUV MSRP $27,200 247 mile range 115 MPGe
Hyundai Kona Electric MSRP $34,000 258 mile range 120 MPGe
Tesla Model 3 RWD MSRP $46,990 272 mile range 132 MPGe
*MSRP is starting price only and does not include any potential tax credits.
How do you charge?
Although it is possible to charge an EV off a standard 120V outlet (called “Level 1 Charging”), it is a bit like trying to fill up a swimming pool with a squirt gun. In most cases, a Level 2 charger would be more appropriate for current plug-in vehicles. A wall outlet for Level 2 charging can be installed in your garage for around $300-$1500, depending on your electrical situation. (Be sure to check out the federal tax credit for 30% of residential EV charger install costs up to $1000.) Most EVs get to a full charge when plugged in a Level 2 charger at home overnight.
For long road trips in fully electric vehicles, public DC fast chargers are available which can typically add about 80% of a full charge in around 30 minutes, although charging speeds will vary based on the charging station and your vehicle. Be aware that the cost of public charging is often multiple times higher than the cost of charging at home.
Public charging stations are currently not as prevalent as gas stations; however, the public charging network has expanded massively in recent years. The further expansion of this network is a high priority in the U.S., with the recent infrastructure package designating $7.5 billion to continue the growth of this network in the coming years. If you have range anxiety or take long trips often, a plug-in hybrid might be a great option to take advantage of EV savings during your day-to-day travel but still have access to gasoline when traveling long distances.
How Does the Tax Credit Work?
The original version of the EV tax credit was up to a $7500 credit for purchasing an electric vehicle and applied for up to 200,000 vehicles per manufacturer. It was a fairly straightforward credit with the intent of encouraging the sale of electric vehicles.
The Inflation Reduction Act of 2022 just signed into law on August 16 will replace the previous electric vehicle tax credit, and I think everyone can agree that things did not get simpler. The new law which will apply through 2032, removes the previous 200,000 vehicle cap so all manufacturers can again qualify and also introduces a potential credit on used EV purchases. Beyond that, things get complicated. The new law is less focused on spurring demand for EVs and more focused on encouraging a local and reliable supply chain for electric vehicle and battery manufacturing. The credit applies to vehicles assembled in North America and is dependent upon the sourcing locations of battery minerals and components. There are now strict limits on vehicle price and consumer income as well. The industry is working to understand the new law and how it will apply to EVs and consumers. Some initial reports are estimating that due to the stringent new requirements, more than 70% of all EVs will no longer qualify for the credit, however this will likely change in the coming years as manufacturers have time to adjust their supply chains accordingly. Be sure to do your research and speak with your dealer and accountant to understand how the new credit might apply to you.
Some state tax incentives may also be available so be sure to investigate.
The Coming Transition
The overall car market (and particularly the EV market) is the Wild West right now. Supply chain disruptions, chip shortages, battery recalls, Covid shutdowns, and massive sales backlogs have significantly complicated the process of buying a new car. Even though it may take a few years for these issues to resolve, the imminent transition to EVs will bring an improved driving experience, lower fuel costs, and less time and money spent on maintenance.