/ Money Blog
Buying an electric car
Note: You can use any financial calculator to do this problem, but if you want the BEST, you can
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This post is going to be about the choice to buy an electric versus an internal-combustion vehicle. However, it's not going to cover environmental and other 'qualitative' considerations, and is going to make some broad-stroke assumptions to keep the problem relatively simple. And while the purchase-price numbers are roughly accurate as of today, the details of any given automobile-purchase transaction will
be different for each buyer based on their negotiating skill, where and from whom they buy their vehicle, the incentives available to the seller (and the urgency of the sale to the seller), and many other factors.
For simplicity, I'm going to make the following assumptions:
- The cars will be purchasable for MSRP with no taxes, title, fees, or other costs, and that no governmental incentives such as tax rebates are available.
- I've already got a set of solar panels on my roof that will allow me to drive the electric vehicle with zero fuel cost over the life of the vehicle.
- The maintenance costs and insurance costs of the two types of vehicles are equivalent over their lifetimes.
- The lifetime of both vehicles will be 15 years.
- Gas will average $3.75 per gallon.
- I will drive an average of 1,000 miles per month.
- At the end of the 15 years both of them disintegrate and are worth nothing to anyone.
- I have the cash to buy either vehicle outright, with no loan.
If you want to evaluate a 'real' deal comparison, you'll want to scrutinize these assumptions and make sure that you plug real (or at least more accurate) numbers into your personal calculations.
Okay, enough of the setup. Let's get into the scenario.
Let's say I'm in the market for a new car, and I've narrowed it down to two models that I'm considering: a 2018 Chevy Malibu (MSRP: $24,300
*, average 35 MPG) and a 2018 Chevy Volt (MSRP: $35,980
The Question: What is my ROI on the extra money I'd pay for the Volt, given the assumptions laid out above?
* Note: Depending on when you're reading this, the MSRP noted on the website I used may be different than they were at the time I wrote this. Don't let that distract you; the exact values aren't as important as how to use them to answer the question.
This problem has several steps.
First, I need to figure out how much extra money I'd spend to buy the Volt versus the Malibu.
Second, I need to figure out how much money I'd pay for gas each month by driving the Malibu.
Third, I need to find out my ROI on the extra money (from step 2) if it saves me gas money each month (from step 1).
The Volt will cost me $35,980 - $24,300 = $11,680
more to purchase than the Malibu.
If I drive the Malibu 1,000 miles, and I get 35 miles per gallon, then I use 28.57 gallons of gas per month. At $3.75 per gallon of gas, this means that I spend $107.14
per month on gas if I buy the Malibu.
First things first, make sure the calculator is using 12 Payments per Year.
N: 180 (I'm going to keep whichever car I buy for 15 years)
I/YR: (this is what I'm trying to find)
PV: -11,680 (I spend an extra $11,680 today to buy the Volt)
PMT: 107.14 (I save $107.14 in gas each month by driving the Volt)
FV: 0 (At the end of the 15 years, whichever car I buy will go away)
If I buy the Volt (and all my assumptions stated above are true and correct), I'll make 7.33% on the extra $11,680 I spent to buy the Volt instead of buying the Malibu.
What do you think? Was I too generous with the assumptions, or not generous enough? Did I miss any big details that are important in evaluating the financial side of making this kind of purchasing decision? Which vehicle would you choose, if you were in the market to buy a vehicle, and why? Let us know in the comments!