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Hybrids and Electric Vehicles: Costs

July 15, 2016
Auto Loans, Loans
Hybrid and Electric Vehicles: Cost
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For car shoppers interested in vehicles that are friendlier to the environment, understanding how the technology works is only half the battle. It’s also important to understand how those technological features affect the vehicles’ prices.

The differences among standard hybrids, plug-in hybrids and battery-electric vehicles show up throughout a vehicle’s life cycle, including purchase price, ownership costs, fuel costs and trade-in value. 

Here’s how the following factors affect the cost of owning an alternative-fuel car:

Purchase price

Generally, the cost of an alternative vehicle rises with the amount of battery on board. That usually makes standard hybrids the least expensive alternative, followed by plug-in hybrids, or PHEVs, and then battery-electric vehicles, or BEVs.

The purchase prices for standard hybrids tend to be lower because they’ve been on the market awhile, and their parts are a bit more common. Still, the typical hybrid’s price tag is around $2,500 more than that of a similarly sized and equipped conventional model.

PHEVs, which have larger batteries and more complex charging systems, can cost between $3,000 and $6,000 more than their conventionally powered counterparts before federal tax credits and state or local incentives. More about those later.

BEVs have even more expensive batteries and often cost $10,000 more than similar gasoline-fueled models before incentives.

Keep in mind that manufacturers often try to make hybrid and electric vehicles’ price tags more palatable by loading them with features that would be options on other models.

And there are loads of exceptions to the pricing guidelines above. Lexus charges $120,000 for its ultra-luxe, standard hybrid LS 600h L — $38,000 more than the similarly equipped, gasoline-fueled LS 460L. And the hybrid gets just 2 mpg more than the gasoline-engine version. Lincoln, on the other hand, sells its MKZ hybrid for the same price as its conventional MKZ sedan.

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Chargers

Because BEVs have such large batteries, most owners will also want to buy a home charging unit that requires a dedicated 220-volt electrical hookup. Some garages already have one, while others will need to have one installed by a qualified electrician. Charging stations often cost between $400 and $1,000, and the installation of the electrical hookup can cost hundreds more.

Most PHEVs can be charged overnight using a standard 110-volt household circuit, so there’s no need for owners to buy a 220-volt charging system. And standard hybrids don’t require charging, so owners don’t have to consider this cost component.

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Incentives

The purchase price of qualifying plug-in hybrid and battery-electric cars can be mitigated by federal tax credits, which reduce your income tax by up to $7,500 for the year in which you purchased the car. This incentive on standard hybrids was eliminated several years ago.

If you lease, your leasing company receives the credit. It may use the credit to reduce the cost of your lease, but you can’t claim it on your taxes.

Some states and regions also offer financial incentives for purchasing hybrid or electric vehicles, including direct cash rebates and state or local tax credits.

You can find specific information about federal tax credits for BEVs and PHEVs on the Energy Department’s fuel efficiency website. It’s a bit harder to track down state and local incentives, but the National Council of State Legislatures does a pretty good job of updating its list.

If you’re financing a hybrid or electric vehicle, you’ll still have to qualify for a loan based on the initial price — you can’t apply any of the credits or rebates at the time of purchase. The benefits come after the deal’s done or when you file your taxes the next year. But if you’re willing to be patient, combining federal and local incentives can shave thousands of dollars off the real cost of acquisition.

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Insurance

Buying a green car doesn’t automatically make you a safer driver, but some insurance companies still figure that those interested in alternative-fuel vehicles deserve a break. Among the majors, Allstate, Farmers, Liberty Mutual and Travelers offer green-car discounts of around 10% to owners of hybrids, PHEVs and BEVs. Get an estimate before you buy using NerdWallet’s car insurance quote tool.

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Fuel

Fuel efficiency is the main reason to drive an alternative-fuel vehicle, and it’s how drivers earn back the largest part of the premium they pay to buy one. When gasoline costs are low, it can take seven to 10 years for the average hybrid to achieve “payback” through gas savings alone. As gas prices soar, the payback period shortens.

This table shows the number of years it would take for a driver with a standard hybrid, a PHEV and a BEV to pay back the premium paid for the car over a conventional, gas-powered vehicle:

 $2.25-per-gallon gas$4-per-gallon gas
Standard hybrids ($2.5K premium)84.5
PHEVs ($5K premium)7.24
PHEVs with tax credit ($2K premium)2.91.6
BEVs ($2.5K premium, incl. $7.5K tax credit)41.6
All cars driven 15K miles per year. Gasoline-powered vehicle gets 27 mpg. Standard hybrid gets 36 mpg. PHEV gets 60 mpg. BEV's fuel efficiency rating is equivalent to 105 mpg. The national average cost of residential electricity is 12.6 cents per kilowatt-hour and it takes 33.7 kilowatt-hours to equal the energy in a gallon of gas. The price of an electricity gallon is $4.24.

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Batteries

The great unknown in figuring an alternative-fuel vehicle’s true cost is the price of battery replacement. Most battery packs are under warranty as long as U.S. consumers usually keep new cars, but you might be looking at a replacement if you buy a used green vehicle, whether it’s a plain-vanilla hybrid or a BEV.

Hybrids and PHEVs have the longest battery warranties: eight years or 100,000 miles, according to federal law. In California and the 10 other states that use its emissions rules, that’s extended to 10 years or 150,000 miles. BEV battery warranties aren’t subject to the same rules, but almost every automaker with a battery-electric vehicle has elected to use an eight-year or 100,000-mile schedule.

If you do need a replacement, both Toyota and Honda have set fairly low battery prices — around $2,000 for a pre-2016 Prius replacement, for example.

Replacement costs for most PHEV and BEV batteries are unknown at this time. Tesla recently set a $12,000 replacement price for the massive 85 kWh battery in its Model S sedan, and said it would charge $10,000 to replace the smaller 60 kWh version. Many believe those prices, which kick in after the standard eight-year warranty expires, are heavily subsidized by the automaker. Most other BEVs have batteries in the 20 kWh-30 kWh range, so they should cost less to replace.

Historically, battery costs have fallen by 8% to 10% a year. Many battery specialists figure that a cost of $150 per kWh of capacity, the point at which many EVs can be priced competitively with gasoline-fueled cars, will be reached by the mid-2020s.

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Maintenance and repairs

There’s very little research on the amount green-car owners can save through reduced maintenance or repair costs. Specialist sites such as Edmunds.com and KBB.com — formerly Kelley Blue Book — suggest that standard hybrids and conventionally powered cars have similar maintenance costs.

But hybrids and PHEVs can often go longer between brake jobs than conventional cars because their braking systems don’t have to work as hard. Neither do their gasoline engines, so hybrids and PHEVs are less likely to need engine repairs and replacements as they age.

Battery-electric cars also benefit from fewer brake jobs, and of course, they don’t have gasoline engines to maintain. Their electric motors are sealed, have only two moving parts, and don’t need much care at all. And they typically use single-speed gear reduction systems rather than complex, multi-speed transmissions, pretty much eliminating transmission maintenance.

According to a 2013 Ford Motor Co. study regarding the Focus BEV, the typical owner would save about $1,200 in routine maintenance costs over three years.

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Trade-in value

When time comes to trade in your green car, its value will depend on condition, mileage and other “normal” factors, as well as the price of gasoline at the time. The age and condition of the battery will also be a concern for PHEVs and BEVs. Uncertainty about battery life and replacement costs typically take a toll on battery-electric and plug-in hybrid values.

John O’Dell is a longtime automotive writer who has covered alternative-fuel cars for the Los Angeles Times and Edmunds.com. He now runs the website The Green Car Guy. Email: thegreencarguy@gmail.com.