Rising oil prices and the demand for more climate-friendly transportation are fueling many people’s desire for an electric car. Wondering under what conditions it’s worth switching?
Take a look at the overall comparison of electric cars vs gas cars. We have analyzed a 2021 Tesla Model 3 and a 2021 Jaguar XF IC vehicle for you and can give you an overview of costs, fees and depreciation.
5 Years: Electric Cars vs. Gas Cars
Many factors come into play when calculating all the costs you’ll face with an electric car (EV) or internal combustion (ICE) vehicle: These include the purchase price and fuel, as well as the costs of maintenance, insurance and financing. Then there is the factor of depreciation, i.e. the loss in value of the vehicle over time.
Let’s illustrate these costs with an easy example. Imagine two good friends, Joe and Emma. Joe is 34 years old, works as a sales manager in finance and has two dogs. Emma, 37, is Joe’s colleague. She’s the head of the marketing department and lives with her boyfriend and her daughter.
Last year, Joe went electric: He got a Tesla Model 3. Emma also bought a new car, but a gasoline-powered one: a Jaguar XF. The following comparison will show the costs incurred over the next 5 years, starting with the initial vehicle purchase price.
According to Kelley Blue Book, the average transaction price for an EV in the US in April 2021 was $51,532. That’s more than $11,000 higher than what you’d pay at the dealership for a full-sized ICE car.
This price difference is also reflected in our example of Emma and Joe. While Emma spent $42,955 on her gasoline-powered Jaguar, Joe had to fork out $47,990.
A 2020 Consumer Reports study found that charging an electric vehicle typically costs significantly less than filling up a gasoline-powered vehicle. This is also the case for Emma and Joe and their Jaguar and Tesla. While Joe will pay $2,093 of electricity costs in 5 years, Emma will have to pay a hefty $10,475 for the gas (calculating the cost to fill up, based on 15,000 miles per year).
On an annual basis, the Tesla charges $418.6 for electricity, and the Jaguar $2095 for gas. That’s $8.05 per week for the EV and $40.29 per week for ICE.
When it comes to maintenance, i.e. routine activities meant to prevent damage, Emma comes out on top with her Jaguar.
The car comparison portal CarEdge.com has calculated that maintenance for a Jaguar XF within the first 5 years is around $940. Service costs for the Tesla Model 3 are only slightly higher – at $1,115 over 5 years. These expenses include scheduled maintenance, normal wear and tear items and expected repairs.
In addition to maintenance costs, there are repair costs incurred when the car has an accident. The average repair costs calculated by Kelley Blue Book are based on a deductible-free extended warranty. In our example, they are slightly lower for the Jaguar: Emma pays $1,306 in 5 years (that’s $261 per year) – Joe pays $1,551 in 5 years ($310 per year).
Note that even minor accidents can result in damage to the battery pack of an EV. Battery packs can’t often be repaired, and must be totally replaced. The cost to replace may exceed $15,000, according to bankrate.com.
Cost of Insurance
When comparing the average insurance costs for Joe with his Tesla Model 3 to the costs for Emma with her Jaguar XF, including collision and liability, the Tesla performs better: Joe pays a total of $7,185 in insurance premiums over the first 5 years, while Emma has to shell out $9,235. That’s because Jaguar is a British automaker, so vehicle parts may have to be imported into the US from other countries.
Cost of Financing
Joe is also ahead of the game when it comes to financing his car. After an average of five years, he pays $2,644 to finance his Tesla. Emma, on the other hand, ends up paying $2,900 within the first five years.
This is because of green auto loans. They are a vehicle finance option that is available for eco-friendly cars — or cars with lower average emissions such as hybrid and electric vehicles.
Green loans incentivize buyers to consider environmentally friendly cars by offering interest rate discounts and extended repayment periods. You’re more likely to find a green auto loan from a local credit union than from traditional car loans you can get from banks and online lenders.
Total Cost Out of Pocket
Along with the state fees that Emma and Joe need to count with, which are $7,936 for the Tesla and $8,475 for the Jaguar, the composition of the purchase price, the fuel costs, the maintenance costs, the insurance premiums and the financing of an electric car and a gasoline-powered car within the first five years results in the following total costs:
Emma pays a total of $32,920 to cover the cost of her ICE car. Joe pays $24,516 for his EV.
If we include the depreciation of the two cars, i.e. the difference between what they paid and what the car is worth after 5 years, the difference is even greater. According to Kelley Blue Book, the Tesla Model 3 has lost $24,298 in value after 5 years, from an original $47,990. The Jaguar XF has lost $34,378 in value after five years, down from an original $42,955.
Out Of Pocket Expenses For Cheaper EVs
Similar cost savings can also be observed with cheaper EVs. If you compare the electric 2022 Nissan LEAF with the gasoline 2022 Subaru Impreza 2.0i, the Nissan has a significantly lower 5-year cost to own than the comparable Impreza. Even though the Nissan’s purchase price is higher than the Subaru’s ($28,895 vs. $23,237), savings are most noticeable in gas and state fees.
The Nissan uses $2,638 in electricity over 5 years – that’s $528 a year and $44 a month. The Subaru uses a hefty $9,409 in gas in 5 years – $1,882 a year and $157 a month.
Whereas with the Subaru you have to pay $5,335 in state fees over 5 years, with the Nissan you pay no fees at all – on the contrary, you actually receive some money due to federal tax credits and EV incentives on the Nissan LEAF: -$1,216.
Although the Nissan incurs a higher depreciation after 5 years than the Subaru ($20,520 vs. $11,227), in total out of pocket expenses comparison, the EV comes in at $13,979. The ICE comes in at $25,516. That’s $34,499 5-year cost to own for the EV and $36,743 for the Subaru.
Total 5 Year Cost Comparison: ICE vs. EV
The “5-Year Cost to Own” is the total amount of vehicle-related costs you will likely have to cover during the first five years of owning a car.
Adding up all the costs and depreciation of Joe’s Tesla amounts to $48,814. The total cost of Emma’s Jaguar is $67,298. That is $9,763 per year and $814 per month for the Tesla Model 3 and $13,460 per year and $1,122 per month for the Jaguar XF.
How much should I be budgeting for my electric car according to my income?
The total expenditure for an electric vehicle (or gasoline car) along with its depreciation makes a new car an expensive purchase that requires careful consideration.
The non-governmental organization InCharge, which specializes in professional credit counseling and debt management services, therefore advises creating a realistic budget for the EV. Car costs shouldn’t exceed 20% of income. Since electricity, insurance, maintenance, tolls and parking fees are part of that 20%, people should limit their loan payment to less than 10% of their net income.
What exactly does this mean for Joe, the sales manager with his Tesla Model 3? With an annual salary of $152,590, Joe should limit his loan payment to 20% of his salary. That’s $30,518. However, when you add in the many other expenses mentioned, his loan should not exceed $15,259.
So the key to smart financing of an electric car is creating a budget. Wallet by Budgetbakers offers you a simple solution to record your income with all your planned expenses and track them in the long run. You can use manual entry and categorize all the expenses in your favorite way. Additionally, you can synchronize your wallet account with your (multiple) bank accounts and see your entire budget at once.