Electric cars cost less than similar gas cars over 5 years

Consumers worry about the high price of electric vehicles, but it turns out EVs cost less to own than similar gasoline-powered cars over five years in nearly every region of the U.S.

Despite high sticker prices, EVs had a cost advantage over gasoline counterparts in every state but Maine and West Virginia, automotive research firm J.D. Power found in a detailed analysis conducted in the first quarter for Automotive News.

Untangling the cost of owning a car is a complicated but essential exercise for buyers considering an EV over a gasoline-powered vehicle. J.D. Power analyzed many factors, including transaction prices, taxes, regional gasoline prices and electricity rates, and zero-emission vehicle incentives. The data suggests that long-term cost outweighs EV sticker shock for comparable vehicles.

Still, up-front prices for EVs are significantly higher than for gasoline-powered vehicles. EVs carried an average transaction price of $57,584 in the first quarter, excluding the federal tax credit. That was about $13,000 more than the average transaction price of an internal combustion engine vehicle, according to J.D. Power. Intimidating EV sticker prices stand in the way of faster adoption — EVs still made up just 7 percent of first-quarter new-vehicle sales.

Zeroing in on EV costs by state presents a different financial picture. An EV purchase can save buyers more than $9,000 over five years in some places.

When a point-of-sale federal tax credit of up to $7,500 went into effect in January, shoppers and dealers started to place more emphasis on an EV's expense over its lifetime rather than the sticker price or monthly loan payment, said Elizabeth Krear, vice president of J.D. Power's EV practice.

"The light bulb is starting to turn on," she said, with the tax credit making an EV more affordable right away. Plus, "you're not going to have a $150 gas station bill," she said.

Consumers often consider fueling costs, insurance rates, registration fees and other expenses on top of their vehicle's sticker price, but EVs add complexity to the total cost formula. A myriad of incentives and fees apply only to EVs, and those, along with the cost to charge, vary widely by state.

"A lot of everyday shoppers view their financials through that traditional car deal lens where they're really just looking at that up-front transaction price," said Stewart Stropp, executive director of J.D. Power's EV practice. Car buyers tend not to focus on a total cost calculation because they have typically gone from one combustion engine vehicle to another, all with similar expenses.

Consumers expect to pay more to fill up an SUV than a sedan, but the fuel type remains the same from one gasoline-powered vehicle to another. Electricity changes the conversation. Fueling costs are a critical part of the EV versus gasoline vehicle purchase decision because electricity rates vary widely by state.

Other factors go into the total cost equation, including incentives and charges from the federal government, states and utilities, along with tax, title and license fees. Those details are different in every state.

Electricity is expensive in the Northeast, where EV owners save only a small amount on fueling over five years. In California, EV drivers pay more on average for insurance compared with other states because they tend to drive premium models that are more expensive to insure. In Colorado, EV buyers receive up to $5,000 from the state for buying an EV, on top of the $7,500 federal tax credit.

West Virginia was the least affordable state to purchase an EV over a comparable gasoline vehicle in the first quarter. Although the gap was the largest nationally, it amounted to just $1,800 over five years, or $360 annually.

For the newest technology, "$1,800 is nothing," said Kristen Richter, senior manager of J.D. Power's EV practice.

Still, there's another factor that might give car buyers pause. The J.D. Power analysis looked at the difference between similar vehicles. Because EVs are more expensive at the outset, that comparison doesn't look at the cost difference between the current selection of EVs and lower-priced or entry-level gasoline models.

"You also have to be able to afford the higher-priced car from the start," Richter said.

New Jersey had the best comparison. EV buyers there save about $10,000 over five years. The savings mostly come from New Jersey's EV sales tax exemption, a unique perk that starts to phase out in July.

But cost comparisons are just one of many factors to consider when purchasing EVs.

Potential buyers also question whether charging infrastructure is robust enough to power their daily commutes and longer road trips.

Even in Colorado, one of the most affordable states to own an EV, many consumers are reluctant to buy one, said William Knowles, COO of Maroone USA, which has seven dealerships in Colorado.

Their reluctance boils down to a few main concerns, including limited EV driving range and insufficient public chargers, especially along blustery mountainsides, as well as the amount they pay on their car loan each month. "That payment is paramount to their purchasing decision," Knowles said.

The average monthly payment on a new-vehicle loan in the first quarter was $735, a $5 increase from a year earlier, according to Edmunds. The average interest rate on new vehicles has hovered at or above 7 percent for more than a year.

Many of Knowles' customers are flocking to the lowest-priced gasoline cars, like the Chevrolet Trax, which starts at less than $22,000 including shipping. No EV is priced that low.

"Even with the EV tax credit and incentives, it's just really hard to come close," Knowles said.

Most EV buyers aren't waffling between an EV and a gasoline vehicle. They know they want an EV from the start, Knowles said. "They may be doing more trade-offs between different electric vehicle options, like the [Ford Mustang] Mach-E versus the [electric] Equinox, as opposed to the Mach-E versus any other vehicle," he said.

Knowles expects more consumers to become interested as EV prices fall. "We're early in the adoption cycle," he said. "We're still optimistic long term on how EVs will go. I just think it's going to take a little time to get there."