Electric Cars Are Already Cheaper Than Gasoline Ones; Financing Companies Are Trying To Show That

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In the dialog about moving people to electric cars, it is often said that for things to really get going, electric cars need to attain “price parity” with similar gasoline cars. Only then will mainstream consumers embrace them.

The reality is that the EVs reached that parity already when it comes to total cost of ownership. They sell with significantly higher sticker prices, which scare the buyers, but they save more money in fuel and maintenance over the life of the car. It takes a certain mindset to think that way and plonk down money, and there is some risk that the car you buy could fail on that question. It also requires having more spare cash to make that initial purpose.

To address this problem, companies have arisen to change the financing of purchase of electric cars. Purchase of a car usually involves a downpayment, and then a monthly payment on a loan or lease, as well as payments for gas/electricity, maintenance, repairs and insurance. There is a resale value you get back if you sell it, and for EVs, there often is (and soon will be again) a rebate of $10,000 or more for the purchase. For the first EV there is also the cost of installing charging in the home if you can do that.

For a good gasoline sedan that gets 30 mpg, with $3.75/gallon gasoline that’s 12.5 cents/mile. (It will be less in hybrids, more in SUVs and in California.) Add maintenance and expect around 19 cents/mile. For an electric sedan with electricity at the national 13c/kWh rate it’s 3.5 cents/mile for energy and adding maintenance one gets to around 8 cents. For a car driven for 200,000 miles over its whole lifetime, that difference maps to well over $20,000 — though that is spread out over 20 years and is in the future, so it’s closer to around $12,000 in today’s money. That’s enough for parity even without the rebates, and means the vehicles are actually cheaper with the rebates.

EVs need very little maintenance. In fact, the main part of their maintenance is the tires, and they often use more expensive tires. Without the tires, the win over gasoline cars is tremendous.

There are exceptions. Cars that will be lightly used won’t see nearly as much savings, though heavily used cars will see more. EVs that spend a lot of their time on rural road trips, or which don’t have charging at home or work and must use fast chargers even in their home city will pay more for electricity, possibly a lot more in the latter case. Insurance prices vary a lot, and insurers have been slow to adapt to EVs, so today one may see higher prices for insurance for the more expensive EVs, but this is likely to change.

EV makers are also working to reduce the cost of EVs. If Tesla does attain its goal of a decent $30,000 EV, then after the $7,500 federal credit and state credits and the fuel and maintenance savings, it will be cheaper than any gasoline car by a good margin.

In spite of this, a large segment of the population has psychological or financial difficulty with paying more now to save more later. That’s where new companies come in.

Alternate financing

Earlier I covered Spring Free EV, which is focuses on rental/short-term lease of EVs for fleets. Fleet operators are both ready to do the math, and they often put lots of miles on their cars, making the math easier. Nonetheless they don’t have the money to spend on the initial purpose and must finance it somehow.

Tenet

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Tenet is a company doing a new form of car loans. Their goal is to get that total monthly payment to a level that compares with the gas car loans, when you include those other monthly payments. They do this by writing loans up to 8 years (it does take time for the savings to compensate for the initial higher price.) They also will credit the buyer for the tax credit that will come 6-12 months after they buy the car. They design the loan so that this credit can be paid into the loan when it arrives, making it only temporarily be a loan for the larger amount and burying that extra cost.

Tenet points out that while 75% of early EVs were leased, today 80% are bought with a loan. They also are working to help buyers with insurance, and the installation of charging in their home at reasonable prices. (Some electricians charge inflated prices or inflate the work needed to make this install be a burden.)

They don’t currently work to integrate the electricity cost, as that’s fairly hard since it needs to come from your household bill. They create a dashboard for owners to help them track the costs and feel comfortable they are getting better value from their EV purchase than they were from competing gasoline cars.

Zevvy

Zevvy is taking a lease-based approach. They are offering leases with a lower initial fee of $500-$1,000, and adding a fixed per-mile rate. Rather than pushing fixed-term rates, they are allowing shorter terms and more flexibility. Zevvy promotes that they are beating the payments of loans — though of course with a loan you own the used car at the end and thus get value for those higher payments.

Zevvy hopes to get people any popular EV, and leases used EVs for lower prices. At present only the Bolt is available for immediate lease.

Challenges

Recent rises in electricity pricing reduce the savings. In California, for many the night rate for electricity has jumped to 24 cents from 13. Gasoline prices also jumped but are coming back down, it is unclear if electricity will do the same. Solar is now much cheaper and many EV owners are putting in panels — though they are very much something you pay a lot for up front and then save more with later, and there are financing plans to help with that as well.

Long term, the news is very good. While natural gas fueled electricity is going up in price, solar power is dropping fast and will continue to drop. Because EVs can charge when you want, they can naturally make use of renewable power like solar and wind that are available intermittently, and will take advantage of their cheap prices. Indeed, people who put solar on their homes may end up using just 1-2 cents/mile for energy, if the panels are amortized out over their life. Gasoline cars will be vastly more expensive in that situation.

The price of fast charging for road trips has also seen an increase, particularly with Tesla. However, Electrify America currently offers a reasonable 31 cents/kWh — about 8 cents/mile, still beating any gasoline car — for a $4/month membership fee.

The old federal EV credit of $7,500 had an expiration, which hit Tesla and GM and Toyota, but the new credit, which starts in 2023, does not. However, it has strict rules so many EVs will not qualify for all of it.

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