Gas vs. electric vehicles: Which is cheaper to own?

With average gas prices in August 2022 up nearly 22% from the same month last year — and continuing to fluctuate — opting for an electric vehicle may be a no-brainer. You might also be concerned about the rising cost of car maintenance, which is up $279 from last year, or about reducing your carbon footprint. All of these concerns, combined with federal and state government incentives, can be enticing enough for any driver to switch to an electric vehicle. But, will driving an electric vehicle help you save money and the environment? Unlike gas-powered and even hybrid vehicles, the true cost of an electric vehicle is not as obvious. Here are some things to think about if you want to buy an electric vehicle.

The upfront cost of electric vehicles compared to gas cars

If you're thinking about buying an all-electric car, you've probably noticed how different the process is from buying a gas-powered car. Even something as basic as range is different in an all-electric vehicle. The driving range of an electric vehicle is reported in miles per gallon of gasoline-equivalent rather than miles per gallon and tank size (MPGe). You must consider not only how much range you require for daily driving, but also the size of the electric vehicle's battery to calculate the cost per kilowatt hour to recharge at home or at a public charging station.

In addition to the cost of refueling, car insurance will be required in almost every state, regardless of whether you drive an electric or gas-powered vehicle. Many drivers are unaware that car insurance for electric vehicles can be significantly more expensive. These higher insurance costs are primarily due to the higher cost of parts and specialized labor required to repair electric vehicles. The following table compares average insurance premiums for electric and gas-powered vehicles obtained from Quadrant Information Services:

Incentives and rebates

The federal tax credit is a significant benefit promoted by automakers when purchasing new all-electric and plug-in hybrid vehicles. While the maximum credit is $7,500, the actual amount will vary depending on the capacity of the battery, state and local incentives, and other conditions. If you lease a qualified vehicle, for example, this credit will go to the lessor rather than you. Finally, keep in mind that each car manufacturer has a credit limit, and it changes all the time, so buyers considering Tesla or Chevrolet models today are no longer eligible for this benefit. The US Department of Energy's website has a current list of eligible vehicles as well as the maximum credit amounts.

There are also state and local incentives for purchasing an electric vehicle. The National Conference of State Legislatures compiled this list of all the different incentives available to electric vehicle buyers in each state. Rebates on home energy costs, assistance with financing home charger installations, HOV lane exemption with appropriate vehicle tags, and other benefits and incentives are available. Some utilities also provide rebates and incentives for owning and charging an electric vehicle at home.

There are also unique financing options available when purchasing a new electric vehicle. Green auto loans, designed specifically for electric and fuel-efficient vehicles, account for the higher purchase price of these vehicles by providing buyers with additional benefits. Lower interest rates and longer repayment terms could make the monthly payment more affordable.

Hidden costs of an electric vehicle

You may have made plans to buy or finance your new electric vehicle and estimated your car insurance premium, but the costs of an electric vehicle do not stop there. Find out more about the hidden costs of owning an electric vehicle.

Depreciation of your electric vehicle

A brand new car's value can depreciate by up to 20% in its first year. This can be even higher for an electric vehicle, depending on how quickly technology advances. Newer cars may have greater range and battery life, rendering older models obsolete. Car brand and model also matter; according to CarEdge, a Tesla Model 3 retains approximately 71% of its resale value after five years, while a Nissan Leaf retains only 55%. In comparison, a Toyota Camry retained 76% of its resale value.

When it comes to electric vehicles, there is another issue that car owners may encounter as the vehicle ages: battery degradation. The tank of a gas-powered car does not shrink with age, but the battery range of an electric car does, reducing the maximum number of miles you can drive before it needs to be recharged. While many factors can influence battery lifespan, ranging from improper charging to cold weather conditions, it is unavoidable that an electric vehicle's battery will not always have the same range as when it was new. And, like the battery in a gas-powered vehicle, it will eventually need to be replaced. We'll get to the price in a moment.

Maintaining your electric vehicle

Because all-electric vehicles have fewer moving parts than gas-powered vehicles, it is reasonable to assume that they are less expensive to maintain. In some ways, this is correct: electric vehicles do not require oil changes or regular tune-ups, and brake systems may last longer due to regenerative braking.

Instead, one of the most expensive costs associated with electric vehicles may be battery replacement. Those purchasing a new car may not have to worry about this for the time being, but those opting for a used vehicle may face this cost sooner rather than later. Green Cars estimates that the average cost of replacing a battery ranges from $5,000 to $15,000, not including labor. However, it's worth noting that modern batteries can last up to ten years or more, depending on the car, how it's driven and charged, and other factors. Furthermore, many manufacturers offer warranties on EV batteries, sometimes up to 100,000 miles or ten years, according to Autoweek.

Currently, vehicle quality is another factor driving up the cost of electric vehicle maintenance and repair. According to J.D. Power's 2022 Initial Quality Study, while quality issues were observed in almost every car manufacturer and model, electric and plug-in hybrid models had significantly more issues than gas-powered vehicles. Factors such as a shortage of critical components, advanced technology, supply chain disruptions, and labor disruptions have all contributed to lower vehicle quality and rising repair costs, which are likely to continue until these issues are resolved.

*Tesla models are shown separately due to their predominance, which could obscure the legacy automakers that have recently introduced BEVs. 

Charging your electric vehicle

The first concern of any prospective electric vehicle owner may be how to charge an electric vehicle. Fully charging an electric car could take anywhere from thirty minutes to a few hours, and whether you charge at home or at a public charging station, peak rates may apply. As a result, owning an electric vehicle is more difficult for those who rent or live in a townhouse or condominium where installing an at-home charger is not feasible.

Installing an EV charger is convenient if you can charge from home, but it adds another cost to your EV ownership. To retrofit your home, you'll usually need to buy a separate charger and hire an electrician. You should also perform a calculation to accurately estimate the total cost of your electric vehicle to see if it offsets the cost of fueling your current vehicle. The first step is to determine how much electricity you pay per kilowatt hour during peak and off-peak hours. As previously stated, some electric utility companies offer incentives and rebates to EV owners who charge their vehicles at home, so you should check with your utility company to see if any cost savings are available.

Tools to help you calculate the cost of owning an electric vehicle

Taking the time to understand whether or not an electric vehicle fits your needs and lifestyle is an important part of purchasing one. Before you make the switch, consider the following resources to help you calculate the cost of owning an electric vehicle:

• FuelEconomy.gov: This website, developed by the Environmental Protection Agency, allows you to compare up to four vehicles based on EPA fuel economy, annual fuel cost, tank cost, tank size, and other factors.
• Alternative Fuels Vehicle Cost Calculator: Developed by the United States Department of Energy, this tool allows drivers to compare up to eight vehicles while taking into account how the vehicle will be used, such as the average daily driving distance and the types of roads the vehicle will be most commonly driven on.
• Carbon Counter: The Carbon Counter at MIT is useful for drivers who want to see how much carbon they will emit depending on the car they choose to drive.

Conclusion: Should you buy an electric vehicle?

Given the environmental impact of gas-powered vehicles, it's no surprise that many drivers are opting for electric vehicles. California has even announced a plan to restrict and ban the sale of new cars powered by internal combustion engines by 2035, a measure that could eventually be adopted by other states and even the federal government.

Still, purchasing an all-electric vehicle is a personal choice. Having an electric vehicle may require you to change your routine, especially if you do not live in an area with convenient charging options. The costs of ownership, such as insurance, maintenance, and installing a home charger, can quickly add up. However, if you can benefit from the convenience of an electric car, take advantage of all available incentives, and care about reducing your carbon footprint, switching to an all-electric vehicle may be worth considering.

If an electric vehicle isn't right for you, there are still plenty of economical and environmentally friendly options. Car manufacturers are consistently expanding their lineup of different gas-powered and hybrid gas models, allowing you to go further with the same or even less gas. If you're not sure if an all-electric vehicle is right for you, a plug-in hybrid may be the perfect compromise, giving you the best of both gas-powered and all-electric vehicles.