How electric cars will save you money

If you are someone who watches your dollars and cents, you probably don’t own a plug-in hybrid. Sure, they deliver good gas mileage but it’s not good enough to offset the higher sticker price needed to cover the costs of the battery. (That’s why I own a Honda Fit.) Cars like the Toyota Prius and Honda Insight are expensive ways to say, ‘I’m green.’

Nissan Leaf

Electric cars are another story, and that’s why the arrival of the Nissan Leaf and the Chevy Volt in just a few months could become a watershed moment for the auto industry, as well as for the environmental movement. Unlike the Prius, the Leaf and Volt are not aimed at the early-adopter, eco-conscious, well-to-do niche buyers on the coasts and in places like Amherst, Ma., and Ann Arbor, Mi. They are being built for the mass market.

The economics make all the difference.

That, at least, is my takeaway from a discussion about electric cars held earlier today at a Washington Post Live event called Energy Now. (Video will be posted on the site, the newspaper says.) The panel was stacked with electric-car enthusiasts–Tony Posawatz from Chevy, Carlos Tavares of Nissan, David Crane of NRG Energy, David Vieau of battery-maker A123 Systems and a lone skeptic, Alan Crane of the National Research Council. But with the exception of Alan Crane, they all argued that electric cars will be not only fun to drive, not only convenient (because you don’t need to drive to a gas station to refuel) and not only good for the climate and for U.S. energy security, but also cheaper to own over the life of the car.

Chevy Volt

That’s essentially because (1) electric car engines are more efficient than internal-combustion engines and (2) generating electricity from a big coal, natural gas or nuclear plant is more efficient than burning gasoline in millions of cars.

This isn’t a new argument. I’ve heard it from people like David Sokol of Berkshire Hathaway and BYD, and from Shai Agassi (See Electric cars: all systems go) but David Crane’s explanation today laid out the math in clear terms.

Describing NRG’s plans in Houston (see Why the Petro Metro wants electric cars), Crane said the NRG-owned utility company, Reliant Energy, is working with Nissan and plans to offer Leaf owners an all-you-can-eat model for buying electricity to power the car. Here’s the selling proposition:

First, NRG would buy and install a Level 2 car charger for the home. Those are worth $1,500 to $2,000, Crane said, and they can fully charge a Leaf, which has a range of about 100 miles, in four to eight hours. “You come home from work, you plug it in, and in the morning it’s ready to go again,” he said. Second, NRG will build a network of charging stations around the city of Houston. “At no point will you be more than five miles away from a fast charge,” he said. )The business model for sustaining the stations remains uncertain.)  Third, NRG will offer  unlimited mileage for three years at a price still to be determined, but estimated at $70 to $80 a month, added to the utility bill. After the three years, the price would drop because by then NRG will have recouped the cost of the charging station and would only need to pay for the electricity.

So how does the math look? At $80 a month, fuel costs for the Leaf would be $960 a year. By comparison, assume that you drive a conventional car 15,000 miles a year and get 20 mpg. You’ll buy 750 gallons of gas. At $2.58 per gallon, the current average price on the Gulf Coast, you’ll pay just under $2,000 a year.

You can challenge my assumptions, but that $1,000 a year in fuel savings will over time offset the upfront cost of the Leaf, which is roughly $25,000 after a federal rebate in most places and $20,000 in California which offers a state rebate as well. If gas prices rise, the deal looks sweeter. It looks better yet if, as seems likely, the costs of batteries (and the sticker price) falls.

Then there are the psychic benefits. A123′s Vieau said the company has already hired 300 people at the battery-making plant it just opened in Livonia, Mi., and expects to hire many more. “We’re shifting dollars spent on oil overseas to create jobs at home,” Vieau said.

People who care about the environment, meanwhile, can take pride in the fact that they are driving cleaner cars.

“American’s want to make a difference if they can,” NRG’s Crane said. “Look at the organic food business.”

Now, a couple of caveats: Today’s electric car business is heavily subsidized, it must be noted. Buyers get tax breaks. Battery maker A123 got a $249-million stimulus grant, a federal loan guarantee and state subsidies and Nissan was given a $1.4 billion energy department loan guarantee to retool a plant in Smyrna, Tennessee. GM, of course, got bailed out.

The second caveat is that it will take years for electric cars to have a major impact. The Chevy Volt will be available in only seven states at first, Posawatz told me that Chevy will make only “thousands” of the cars in the first model year, and “tens of thousands” after that. “If the demand is there, we’ll keep building more,” he said.

Nissan will make about 60,000 Leafs in  Japan during 2011, for the world market. Nissan had been taking pre-orders for the Leaf on its U.S. website, but stopped today because 20,000 have been ordered. The company will be able to build more starting late in 2012 when it opens the Smyrna plant, which has a capacity of 150,000 units a year.

To put that in context, there are more than 250 million cars on the road today in the U.S.

Still, I received an interesting 62-page report earlier today from HSBC Research called Sizing the Climate Economy. (If you Google it, you can download a PDF.) Its best guess is that the market for low-carbon vehicles — essentially, electric cars — will grow to $473 billion worldwide by 2020, making low-carbon transport business a bigger investment opportunity than low-carbon energy.

Electric cars, in other words, are going to be a very big deal.


  1. Mark -

    thoughtful post, but I am surprised you repeat the hoary myth that alternative energy technologies are the only ones that are ‘heavily’ subsidized without acknowledging that fossil fuels, especially oil and gas, as also heavily subsidized in a multitude of ways, including a huge defense budget. Please use your platforms to expose this distortion.


  2. Marc,
    I’m afriad the panel of EV enthusiasts took you for a ride.

    You call the Prius and the Insight “expensive ways to go green” but if you included them in the same example you used to tout the advantages of EVs, you’d have reached another conclusion.

    Both hybrids get more than twice the MPG of the 20 MPG car you used in your example, so annual fuel costs would be less than half the $2000/yr number you cam up with… around $800-$900 per year, and LESS than the $960 a year you cite for the Leaf.

    Yet even after the Feds subsidize the Leaf (MSRP $32,780) to the tune of $7500, it will be more expensive than an Insight (MSRP $19,800) or the Prius (MSRP $22,800). If it comes to economical green, hybrids are the way to go. Although a small ICE car with good gas mileage like your Honda Fit at 30MPG and only $14,900 isn’t too shabby.

    You need to drive a lot more than 15,000 miles per year (which is an average of 50 miles/day 300 days per year in a car with a range of only 100 miles) in order to make the Leaf seem economical. You could probably lower carbon emissions a lot more for less cost by putting 2 people in hybrids than by putting 1 person in a Leaf.

  3. Tom, thanks, you’re right and I should have done my own math on the hybrids. I had thought the initial battery costs and price gap were higher. I appreciate your correction here.

    Michael, I agree re fossil fuel subsidies. Imagine how different our military policy would be if we were less dependent on Middle East oil.

  4. One of the clearest ways to do the math is to compare the operating cost of each technology on a cost-per-mile basis. This works particularly well if the electric car is plugged in and recharging from a solar-powered house, e.g. in California, where solar electricity costs as little as 5 cents per kWh.

    A gas-powered car that gets 20 mpg on a gallon of gas costing $3.00 costs 15 cents per mile to drive.

    An electric car that goes 3.5 miles on a kWh of electricity costing 20 cents costs 5.7 cents per mile to drive.

    That same car running on solar-powered electricity costing 5 cents/kWh costs 2 cents per mile to drive.

    That cost-per-mile number is equivalent to 39.9 cents per gallon gasoline!

    See more information at

  5. It’s interesting how many analyses of the potential electric vehicle market point to the paltry numbers of vehicles that Nissan and GM will produce this year. That doesn’t reflect demand: it reflects supply, the ability of these automakers to introduce a new model, and equally important, the ability of lithium-ion battery suppliers to produce the huge number of cells required.

    Nissan’s Leaf was sold out in March, with most buyers never seeing the car in person. GM has no pre-order process for the Volt, with dealers setting the price. I think you’ll see buyers paying a hefty premium for the few vehicles dealers can obtain. Once people ride in one of these cars, they will want one. They’re sexy, they’re quiet, and they accelerate nicely.

    The electric vehicle market will almost certainly experience explosive growth. People who owned the short-lived GM EV-1 and rare Toyota RAV4 EV loved their vehicles, and there are hundreds of thousands of consumers ready and willing to pay for an EV now. But they are going to be very disappointed when they try to buy one, and learn just how long the waiting list is.

    Fortunately other automakers will see this demand and step in–most if not all have some EV project in the wings. Battery cost is the big technological hump at this stage, but as A123 and other battery makers bring more production capacity online, prices will fall, and government subsidies will no longer be required. Remember, EVs were practical (if expensive) when lead-acid and NiMH batteries were used ten years ago. Lithium-ion batteries only improve the cost equation.

    Also keep in mind how much cheaper a pure EV can be: no cooling system, exhaust system, engine, gas tank. No belts, hoses, fluids, oil changes. And eventually, no transmission or even axles, when each wheel can be driven by its own electric motor. In a few years, EVs will be the vehicles of choice because they are cheaper to own, not merely greener. Without the complexity and vibration of internal combustion engines, they will be more reliable and longer-lived as well.

    Electric vehicles will be a disruptive force, the iPad of transportation. Except Steve Jobs can keep up with demand; automakers and battery suppliers will not be able to do that for years.

  6. Norman Gelman says:

    I wish I shared your expectation, Marc, but I don’t. These new cars may be useful as a second car but they can’t help you if you expect to drive more than 100 miles any day in the year. Until battery capacities are improved — a project to my certain knowledge that has consumed industry for the past 30 years –no one is going to rely on a vehicle that needs to be “refueled” every 100 miles. If vehicle ranges are improved to — say — 250 miles, it will wouldn’t work without a nationwide recharging network. Building such a network would be a formidable task, and it’s unlikely, it seems to me, that the oil companies are going to go out of their way to install recharging apparatus at their gas stations.

    There are a lot of other obstacles as well, the principal one being demand. I was there when the U.S. auto industry abandoned the small car market to the Japanese. It was very short-sighted but it happened because the industry didn’t foresee sufficient demand to justify the investment, especially considering that they would lose money on every car sold.

    Hybrids are a much more promising technology. Because they generate electricity while in use, it won’t be long before they can operate without the need for an electricity “fueling” system.

    As for the economic cost to society, my view is that a car costing the consumer more is a better bet than a car that needs to be subsidized in order to be sold.

    Maybe there’s a battery break-through in the pipeline somewhere but until it emerges from the pipeline youcan say of battery powered cars what used to be said of Brazil — namely that it’s the nation of the future and always will be.

  7. First, I believe Mr. Conrad and Mr. Spelman are spot on.

    Secondly, I would like to point out the potential harm the electric car subsidy may cause. The subsidy will be used by people who would otherwise have bought a car that was nearly or perhaps more environmental friendly than the Volt. No one is buying a Chevy Volt instead of a Chevy Suburban. Thus the govt. is promoting electric cars at the expense of hybrids. In fact, the whole GM bailout utlimately hurts companies such as Toyota who had a track record of high mileage cars. Finally, the U.S. Govt. public endorsement of electric cars has forced companies such as Toyota to introduce electric cars earlier than they believe prudent, again at the expense of hybrids or other technologies such as fuel cells.

  8. My concern is the significant MPG rise we will be seeing in conventional powered cars. With 40-50mpg coming in the near future, these vehicles will be similar to run cost wise (unless big spike in gas prices, which is always possible), go 500-700 miles on a tank of gas, and retain a familiarity to consumers in both looks and brand name. So, unless gas prices do spike dramatically (like double or triple), where is the incentive for the masses? Cost of ownership over the life of the vehicle is definitely a plus for the EV side, but until that hard data is out (requiring EV to be in mass for 5-10 years to accumulate reliability and repair data), that’s a hard sell to get people to switch. I don’t see EV as a reality until the cars can be purchased in the $10-15k range and offer a range of 300 or so miles per charge. Would love to be proved wrong on this!

  9. Jason Zhao says:

    I don’t think there are any 10 – 15k gasoline powered cars out there. Of course used vehicles are a different story.

    Everyone else,
    EV’s today, like the Tesla Model S, can already reach 300 miles on a single charge! Unfortunately, a base priced Model S will cost you 50k, but with mass-production, prices will drop. They are already planning a new EV with similar technology, code named BlueStar in the 30k range. Tesla also as a system in place where batteries can be swapped in less than 2 minutes! Instead of driving to a gas station, we could drive to battery swapping stations and swap our low ones for fully charged batteries. A national battery swapping infrastructure would be much easier to implement, for there is already electricity everywhere.

    The first cars were all electric, and it was a mistake in the first place to move to fossil fuels. Ev’s are quieter, more efficient, smoother, and virtually maintenance free. One new battery technologies are implemented into cars, there will be almost no reason to not switch to EV’s. (Just for reference, some new battery technologies i’m particularly excited about are carbon nano tubes. Simple, yet large capacity batteries can be literally grown on a silicon wafer, effectively lowering the cost of a battery, and improving it’s capacity)

    Gas prices will eventually rise, and we will have to abandon the idea of gasoline powered vehicles with one or two centuries. If we do not begin acting now, the transition from gas to electric will not go smoothly.

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