The Economics of EVs — 12 months with a Tesla Model S

I’m a Tesla evangelist. The car is phenomenal and one of the smartest consumer products I’ve ever owned. It’s sharp, drives well, the software integration is amazing, and it received the highest rating ever from Consumer Reports. I’ve had the car for a little over a year and wanted to take a look at the economics of fueling.

I’ve driven 4,499 miles over the last year. During that period, the car used 1,932 kWh of electricity or 429 Wh/mile. I drive mostly in the city, continuously starting and stopping, so my efficiency is likely lower than the average. I pay $0.05 per kWh of electricity in Chicago (one of the cheapest rates in the country). There is a loss of about 10-20% when you charge (according to Wikipedia, which references studies on lithium-ion lifetime-charge efficiencies). We’ll compare these stats to the Honda Civic, which gets 28 mpg in the city. Gasoline in the Midwest averaged about $3.35 over the past year (according to the EIA).

1,932 kWh/0.85% = 2,273 kWh purchased from the utility (adjusted for charge efficiency)

2,273 kWh x $0.05 = $113.65 in electricity for 4,500 miles

$113.65/4,500 miles = $0.025 per mile in fuel costs

$0.025 per mile * 28 mpg = $0.70 per gasoline gallon equivalent

4,500 miles/28 mpg = 161 gallons of gas x $3.35 = $538.40 in gasoline costs

$538.40 in gasoline vs. $113.65 in electricity or a $424.75 difference (nearly an 80% reduction)

On a percentage basis, it’s clearly a large reduction. But I didn’t buy the car for the fuel savings, and I don’t drive enough miles for the economics to work. I’d have to own the car for a long time to get any real payback on the purchase price. However, this does give us some insight into mass-market adoption from an economic standpoint.

According to the EPA, the average miles driven in the US was 11,493 in 2010.

11,493 miles/28 mpg (Honda Civic) = 410 gallons of gasoline x $3.35 = $1,375 in fuel costs

$1,375 in fuel x 80% reduction = $1,100 in fuel savings per year

The average commuter then would save $1,100 a year in an EV versus a Civic.

Let’s assume that this consumer is going to spend $20,000 on a Honda Civic (which starts at $18,000). The question is how much more would you be willing to spend to save the $1,100 a year?

If you spent $25,000, an increase of $5,000, you’d get a 22.0% return ($1,100/$5,000).

If you spent $30,000, an increase of $10,000, you’d get a 11.0% return ($1,100/$10,000).

If you spent $35,000, an increase of $15,000, you’d get a 7.3% return ($1,100/$15,000).

This all sounds about right and squares with the pricing of the Prius. People are willing to pay more, maybe $5,000 to $12,000 more, for the Prius because it’s more efficient, cleaner, and has a certain status. A mass-market EV would have to be near that price point. And even at a $35,000 price point, it still would offer a 7% return in fuel costs to the average consumer versus a leading car like the Honda Civic. Certainly it gets better if you travel more miles. If you are going 15,000 or 20,000 miles per year, then the fuel savings quickly add up. It seems very rational to me then that if EV costs can get close to $30,000 to $35,000, you should see widespread adoption on economics alone.

The car would have to have adequate range, but the required range is reasonable. Let’s assume that the 11,493 miles (the number of miles the average person drives per year in the US) are all driven on weekdays. 11,493/260 weekdays = 44 miles a day. Lets double to 88 miles just to be safe. Therefore, let’s round up and say that you’d want 100 miles of range for a commuter car.

The whole analysis is sensitive to a number of inputs. For example, where you live will determine your fuel and electricity costs, but these tend to be linked. California has higher electricity costs but also higher gasoline costs.

The biggest risk to EV adoption maybe improved fuel efficiency standards. These new standards are going to have a big effect on fuel efficiency in vehicles in the coming years and reduce the demand for gas. That along with cheap and seemingly now abundant oil in the US means gasoline prices are likely going to go down. All that being said, it feels like we could get there this time.

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *