Ronald Montoya
Ronald Montoya, senior consumer advice editor at Edmunds.com, a leading provider of automotive information. He is based in Santa Monica, California. Edmunds.com
Are electric vehicles (EVs) an economical choice? They certainly offer one way to avoid the pain at the pump. And total EV costs are trending downward thanks to EV batteries that are being made more efficiently, in greater numbers and in some cases with less expensive materials. But the financial picture becomes muddy when you add up all the costs of vehicle ownership. Much depends on which EV is selected and how it’s driven.
The cost of owning a new vehicle driven 15,000 miles or more annually—EV or gas-powered—exceeds $10,000 per year, according to AAA. So owning a new car can have a big effect on your household budget for years. Here are the financial pros and cons of EVs versus internal-combustion engine vehicles…
Purchase price. Tesla recently slashed prices on certain models, but EVs still tend to have substantially higher purchase prices than comparable gas-powered vehicles. You may have heard that EV sticker prices average around $10,000 more than those of gas-powered vehicles, but that somewhat understates the price gap. For a more realistic gauge of the EV price premium, consider the sticker prices of vehicles that are offered in both EV and internal-combustion versions. Examples: The Hyundai Kona starts at $22,140, while the electric version of the Kona starts at $33,500. The Ford F-150 pickup starts around $33,500, while the EV version—the F-150 Lightning—starts at around $58,000. Conclusion: There is a price gap north of $11,000 for a small economy-minded vehicle…and that can climb to more than $20,000 in pricier vehicle segments.
Advantage: Internal combustion.
EV tax credits. An EV federal tax credit of up to $7,500 has historically helped keep the purchase prices of EVs relatively close to those of comparable internal-combustion vehicles—but new rules make the credits difficult to obtain.
To qualify for the credit: The EV must have an MSRP at or below $55,000, or $80,000 for an SUV or truck…and be assembled in North America. The buyer’s modified adjusted gross income (MAGI) must not exceed $300,000 if he/she files a joint tax return or as a surviving spouse…or $225,000 if he files as head of household…or $150,000 if he files as an individual.
Also: The EV battery plays a major role in determining how much of a tax credit you can get. First, if 40% of the minerals contained in the battery were sourced from or processed in North America or a country with a free-trade agreement with the US, then it is eligible for a credit of $3,750. Secondly, if at least 50% of the battery is manufactured or assembled in North America, it is also eligible for a credit of $3,750. For both credits, the requirements for minimum percentage of minerals and percentage of assembly/manufacture will increase annually.
Automakers inevitably will shift EV assembly and battery construction to the US to comply with these new rules, but that won’t happen overnight. That means many EVs don’t currently qualify. The safest way to confirm that an EV qualifies for tax credits is to enter its vehicle identification number (VIN) into the US Department of Energy tool set up for this purpose—AFDC.energy.gov/laws/electric-vehicles-for-tax-credit.
Advantage: EVs, but only certain ones.
Electricity and gas. It usually costs significantly less to charge up an EV than it does to gas up a vehicle with an internal-combustion engine. The size of this per-mile EV savings is difficult to calculate because it varies dramatically based on the current prices of gas and electricity…the efficiency of the vehicles…and how aggressively those vehicles are driven. Rule of thumb: Per-mile costs tend to be two to three times higher with gas, and that can add up to annual savings somewhere in the neighborhood of $1,500 per year for the typical EV at current gas prices.
But: EV owners who frequently use public chargers and/or who live in states that have high electricity costs typically save much less. EV per-mile savings usually are calculated based on average US electricity rates of around 15 cents per kilowatt hour—but electricity rates have recently been above 20 cents per kilowatt hour in Alaska, California, Hawaii, New York and across New England, though lower rates might be available if charging is done during off-peak overnight hours.
What’s more: Charging at public charging stations can be virtually as expensive per-mile as filling a gas tank, even in states where electricity is less pricey. Most EV owners do the vast majority of their charging at home, but this is a consideration for anyone who anticipates frequent public charger use.
Also: EV buyers who plan to charge their cars at home should remember to factor in the onetime cost of having a charging system installed in the garage. That can cost anywhere from several hundred dollars up to $2,000 or more.
Advantage: EVs…but the size of this win varies more than EV buyers realize.
Financing. Because EVs tend to have significantly higher sticker prices than comparable internal-combustion engine vehicles, most buyers must finance a larger portion of the purchase. That can be costly at today’s steep interest rates—as of early 2023, the typical new-car auto loan had an interest rate of around 6.5%, and many car buyers now have monthly payments above $1,000.
Advantage: Internal combustion.
Depreciation. EVs lose value faster than internal-combustion vehicles for several reasons—used-car shoppers typically are looking for a deal rather than to make a statement or keep up with the latest EV tech…the technology has been changing so quickly that used EVs can have outdated features or poor range compared with new EVs that can be leased…until this year, there had been no incentives for used EVs…and buyers may be concerned about how long an EV battery lasts.
According to a study by iSeeCars, the average new vehicle lost about 33% of value over its first five years on the road…the average EV lost 44%. That extra 11 percentage points of depreciation can represent a significant chunk of money when it comes time to sell.
The EV depreciation gap may narrow in the years ahead. One reason why it exists is that EV tax credits have historically been available for only new EVs, pushing buyers away from used ones. Starting this year, credits of up to $4,000 are available on used EVs. But: Those credits are only for used EVs priced below $25,000 and purchased through “licensed dealers,” so many won’t qualify.
Advantage: Internal combustion.
Maintenance and repairs. EVs require less maintenance than conventional vehicles because they have fewer moving parts—there are no oil changes or spark plug changes, for example. Fewer moving parts also tends to mean fewer repairs over the life of an EV. One study by Consumer Reports estimated lifetime repair and maintenance costs for an EV at $4,600, half the $9,200 for a vehicle with an internal-combustion engine. One reason to have confidence that repair costs will indeed be lower with an EV: Federal regulations require that automaker warranties cover EV batteries for at least eight years/100,000 miles, and some states and automakers extend that further. Warranties on conventional vehicles’ powertrains expire after five years/60,000 miles. These battery warranties are a big deal—a replacement battery can cost from $5,000 to more than $20,000, so the cost of replacing an EV’s battery is the biggest maintenance risk.
Advantage: EVs.
Insurance. EVs generally cost more to insure than comparable gas-powered vehicles. Repair bills tend to be higher when EVs are in accidents due to pricier replacement parts. When an EV’s battery pack is damaged in an accident, the replacement cost often is so steep that insurers must declare the vehicle totaled. That means insurers charge more for coverage. According to one estimate by Forbes, EV owners pay an average of $100 extra per year for comparable coverage.
Advantage: Internal combustion.
Taxes and fees. Many states impose an annual EV tax or fee to make up for the gas taxes that EV owners don’t pay. This charge is typically lumped in with other annual vehicle registration fees, but it can be anywhere from $50 to $200 per year. States imposing these taxes include California, Colorado, Georgia, Idaho, Illinois, Indiana, Michigan, Minnesota, Mississippi, Missouri, Nebraska, North Carolina, Oregon, South Carolina, Tennessee, Utah, Virginia, Washington and Wisconsin. More states could impose them in the years ahead.
Advantage: Internal combustion. It’s tempting to call this an EV advantage—after all, all owners of gas-powered vehicles pay gas taxes each time they fill their tank, while EV owners pay taxes only in certain states. But since those taxes are built into the electric-versus-gas per-mile costs, internal combustion gets the win.
