Economics of electric vehicles

While the electrically powered Tesla Roadster is a toy for the rich, at over $100,000, the Chevrolet and Toyota gasoline-electricity hybrids expected in 2010 aim at bigger U.S. markets for electric vehicles. Like the Tesla, they will initially appeal to enthusiasts drawn by personal attitudes. To reach substantial volumes they must compete on conventional grounds, including economics. With few performance measurements and little 21st-century sales experience for electric vehicles, one can only estimate.

We can compare forthcoming electrically powered vehicles with efficient gasoline-powered vehicles from popular makes, including the conventional Honda Civic, Toyota Corolla and Chevrolet Aveo. EPA average efficiency ratings for the 2009 models of these vehicles are 29-31 mpg.[1] The 2009 Tesla Roadster has EPA ratings of 3.0 mi/kWh highway and 3.1 mi/kWh urban.[2]

Energy costs depend on prices. U.S. residential electricity prices vary widely by geographic region but do not vary as much over time.[3] In recent years residential retail electricity rates per kWh have been as low as $.08 in some mountain states but have reached over $.20 in some northeastern states. For 12,000 miles, electric vehicle efficiency of 3.1 mi/kWh, and a range of prices per kWh, annual energy costs for electricity are:

/kWh /yr
0.08 $310
0.12 $465
0.16 $619
0.20 $774

U.S. gasoline prices do not vary as much by region but have seen large price changes over time.[4] During the past five years average U.S. regional prices per gallon regular ranged from $1.40 to $4.60. For 12,000 miles, gasoline vehicle efficiency of 30 mpg, and a range of prices per gallon, annual energy costs for gasoline are:

/gal /yr
1.50 .$600
2.50 $1000
3.50 $1400
4.50 $1800

Whether or not one saves on energy costs with an electric vehicle, and how much, depends on location, on trends in petroleum prices and, for gasoline-electricity hybrids, on what fraction of use is powered by externally generated electricity. In an unfavorable case, with electricity above $.15 per kWh and gasoline at $1.50 per gallon, electricity is more expensive. In a mid-range case, with electricity as $.11 per kWh and gasoline at $2.20 per gallon, for 12,000 miles per year an electrically powered vehicle operating at 3.1 mi/kWh will save about $450 per year over a gasoline powered vehicle operating at 30 mpg. At those energy prices, the highly efficient Toyota Prius gasoline hybrid, with current EPA ratings of 45 to 48 mpg,[1] saves about $570 per year as compared to popular, conventional vehicles.

The balances can change when comparing external electricity costs and gasoline costs in a high-efficiency, gasoline-electricity hybrid. Owners of such vehicles will be able to select the lower-cost source of energy. If such a vehicle achieves an electrical efficiency of 3.1 mi/kWh and gasoline efficiency of 45 mpg, then electricity at $0.11 per kWh will be cost-equivalent to gasoline at $1.60 per gallon.

How much extra will a cost-aware customer pay for an electric vehicle? The announced Chevrolet gasoline-electric hybrid is projected to sell for about $37,000,[5] as compared to efficient gasoline-powered vehicles from popular makes at $12,000 to $15,000.[6] In comparison, the Toyota Prius was introduced in 2000 at about $20,000 [7] and now sells at under $22,000.[6] Where the Toyota Prius has a price premium of about $7,00o to $10,000 over efficient gasoline-powered vehicles from popular makes, the projected Chevrolet vehicle price premium would be from about $22,000 to $25,000.

Depending on circumstances, ten years differences in energy costs, using an electric vehicle, might save from nothing to several thousand dollars. That will be offset by service costs to replace batteries, estimated in the thousands of dollars and with unknown service intervals. Projected pricing of the Chevrolet gasoline-electricity hybrid vehicle is out of line with pricing patterns of gasoline hybrid vehicles and appears unsustainable. After a starting surge of enthusiast buyers, it looks unwise for makers of electric vehicles to expect large-market premiums of more than several thousand dollars per vehicle.


[1] U.S. Environmental Protection Agency, Fuel Economy Guide, 2009, at www.fueleconomy.gov/feg/FEG2009.pdf.

[2] Don Sherman, New York Times, Nov. 13, 2008, at www.nytimes.com/2008/11/16/automobiles/16STICKER.html, ratings converted from published units of kWh per 100 miles.

[3] U.S. Energy Information Administration, Average Retail price of Electricity, at www.eia.doe.gov/cneaf/electricity/epm/table5_6_b.html and www.eia.doe.gov/cneaf/electricity/epm/table5_3.html, omitting Alaska and Hawaii.

[4] U.S. Energy Information Administration, U.S Retail Gasoline Prices, at www.eia.doe.gov/oil_gas/petroleum/data_publications/wrgp/mogas_home_page.html, omitting Alaska and Hawaii

[5] Micheline Maynard, New York Times, Nov. 22, 2008, at www.nytimes.com/2008/11/22/business/22volt.html.

[6] Edmunds New Car Prices, at www.edmunds.com/new/.

[7] Internet Autoguide, 2001 Toyota Prius Lineup, at www.internetautoguide.com/reviews/09-int/2001/toyota/prius/lineup.html.

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Some hybrid and electric vehicles use regenerative braking. The gasoline-powered 2009 Prius hybrid achieves EPA ratings of 45 mpg highway and 48 mpg urban.[1] The usual inefficiencies of urban driving are reversed, providing about a 7 percent in-town advantage, primarily because of regenerative braking. The 2009 Tesla Roadster has EPA ratings of 3.0 mi/kWh highway and 3.1 mi/kWh urban.[2] This electric vehicle also achieves an in-town advantage, but only about 3 percent. It appears to have room for some improvement.