Thinking About an Electric Vehicle? Some Costs to Keep in Mind
August 31, 2022
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Note: The Inflation Reduction Act of 2022, signed into law on August 16, 2022, makes changes to the electric vehicle tax credit. This article will be updated after the IRS issues official guidance on eligibility rules. If you have any questions, check with the IRS or your tax advisor for the most up-to-date tax information.
What we’ll cover:
- Electric vehicles have become more popular in the last decade
- They could be a good option for people who want to help reduce harmful emissions and save some gas money along the way
- Fuel, maintenance and insurance are just a few important operating costs to keep in mind as you’re shopping for an electric vehicle
It’s hard not to marvel at how many electric vehicles (EVs) are roaming the streets these days. (Does anyone else get startled by how quiet they are sometimes?)
From 2010 to 2021, the number of electric cars on the road globally has grown from 17,000 to about 16.5 million, according to the International Energy Agency.
It’s fair to say that electric cars have developed a serious following.
Besides their “cool” factor, electric vehicles come with two potential benefits that might explain their popularity over the years. First, they could help reduce the harmful emissions that contribute to climate change. Second, they could help some drivers save money in the long run.
If you’ve been eyeing an electric car, you probably know there are many models to choose from. Driving range, fuel economy and charging options are just some of the logistics you may be mulling over as you walk around the lot (or scroll through the internet).
But on top of that, there are also some key ownership costs that you may want to factor in as you think about buying your first EV.
Some key electric vehicle costs to consider
When you’re shopping for a car, the price sticker on the window is usually the first thing that jumps out at you.
Generally speaking, the purchase price for electric vehicles can be higher than that of conventional gasoline vehicles – whether we’re looking at BEVs (battery electric vehicles or all-electric vehicles), PHEVs (plug-in hybrid electric vehicles) or HEVs (hybrid electric vehicles that cannot be plugged in for recharging).
But owning a car (whether electric- or gas-powered) also comes with other operating costs to consider, such as fuel, maintenance and insurance. Since electric vehicles typically come with lower fuel and maintenance costs, EV owners could potentially make up for that higher upfront sticker price and save money over the long term. Let’s go over what these costs may run.
Good to know: Certain federal and state tax incentives may be available to EV owners. For instance, you might be eligible for a federal tax credit of up to $7,500* if you buy a qualifying vehicle. Visit the IRS for more information on the qualified plug-in electric vehicle tax credit.
*Note: This figure is as of 2022
1. Fuel costs
“I’ll get gas in the morning.” How many of us have regretted uttering those words when morning rolls around?
One potential upside to owning an electric vehicle like a plug-in hybrid is not having to go to the gas station as often (or at all if you own an all-electric car). Many electric vehicle owners can “fuel up” by simply plugging in their car and charging it at home.
Aside from the convenience, charging your electric vehicle at home might be less expensive than paying for gas. Overall fuel costs will depend on a number of variables, including how you drive your electric car, its fuel economy rating and the cost of electricity in your state. (Psst...the US Department of Energy has a website that lets you to look up and compare fuel economy ratings between cars.)
While EV owners may not have to shell out as much money for gas, there are other fuel-related questions to think about.
Generally speaking, EV owners may spend 60% less to fuel their car, according to a 2020 report by Consumer Reports, an independent consumer interest organization. Their findings show that “fuel savings alone can be $4,700 or more over the first seven years” of ownership.
While EV owners may not have to shell out as much money for gas, there are other fuel-related questions to think about. For example:
- How much would it cost to fuel up at a public charging station?
- How long does it take to charge an electric vehicle?
- How far would a single charge take you (that is, what’s the travel range per charge)?
- Do you need to make or pay for any upgrades at home to accommodate the vehicle’s charging needs? And if so, how much would the necessary upgrades (think: equipment and labor) cost?
2. Electric car maintenance costs
Almost every car owner knows that once you’ve purchased a vehicle, you have to take care of it with regularly-scheduled maintenance. This can include oil changes, tire rotations and other general repairs for wear and tear. (In this way, your car really is like your baby!)
Even though it’s hard to break down the costs exactly, there’s a general agreement that EVs and PHEVs typically cost less than gas-powered cars to maintain. And that’s because electric vehicles have fewer moving parts and fluids to swap out or top off, meaning fewer trips to the car shop.
Consumer Reports has found that the average savings are about $4,600 over the lifetime of the vehicle. That said, keep in mind that this estimate can only give you a general sense of what to expect. Actual maintenance and repair costs for electric vehicles can vary depending on how you drive the car, vehicle warranties and auto part costs.
Reaching your goal starts with saving for it.
Let’s take the battery unit. How long do electric car batteries last? While many EV batteries are expected to have a long lifespan (sometimes up to 15 years under certain conditions), they’ll eventually need to be replaced. Depending on your specific model, batteries for electric vehicles can run anywhere from $5,000 to $16,000 or more.
3. Auto insurance costs
Electric vehicles can cost more to insure than gas-powered vehicles. This makes sense if you think about it. As we mentioned earlier, EVs generally come with a higher sticker price compared to gas-powered vehicles. So if you were to completely wreck your electric vehicle, your insurance company would likely have to pay a higher claim to replace it.
Whoa, sounds like there’s a lot of costs to keep track of…
We get it – that was a lot of information to digest. And with so many variables to consider, where do you even start?
This might help: Check out the Vehicle Cost Calculator provided by the US Department of Energy. The tool will ask you a few basic questions about your driving habits and then allow you to compare specific electric vehicle models to help give you an idea of their lifetime ownership costs.
The calculator can give you an estimate of the following:
- Annual fuel use (excluding electricity)
- Annual electricity use
- Annual fuel/electric cost
- Annual operating cost
- Annual emissions
- Cost per mile
This article is for informational purposes only and is not a substitute for individualized professional advice. Individuals should consult their own tax advisor for matters specific to their own taxes and nothing communicated to you herein should be considered tax advice. This article was prepared by and approved by Marcus by Goldman Sachs, but does not reflect the institutional opinions of Goldman Sachs Bank USA, Goldman Sachs Group, Inc. or any of their affiliates, subsidiaries or division. Goldman Sachs Bank USA does not provide any financial, economic, legal, accounting, tax or other recommendation in this article. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice. Information contained in this article does not constitute the provision of investment advice by Goldman Sachs Bank USA or any its affiliates. Neither Goldman Sachs Bank USA nor any of its affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements or any information contained in this document and any liability therefore is expressly disclaimed.
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