EV Economics: Breaking Down Upfront Costs vs. Long-term Savings

The economics of going electric is a simple premise: pay more upfront to save over time.

The upfront investment typically encompasses a vehicle price premium and the necessary charging infrastructure that sets the stage for long-term savings on fuel and maintenance.

We can assess your case for EV adoption by unpacking the layers of upfront costs and subsequent savings.

Upfront Costs: What to expect

As we stated earlier, the initial investment has two parts: the vehicle price premium and the charging infrastructure.

Charging equipment can range from $1,000 for a simple home charger to over $150,000 for a high-speed DC fast charger. To ensure the most efficient and effective charging infrastructure, fleet managers need to consider the vehicle usage patterns, driving efficiency, battery size, charging efficiency, and charging capabilities.

While the visible charging equipment gets the spotlight, charging infrastructure costs are driven heavily by the electrical infrastructure that is not often seen. These upfront electrical infrastructure costs can be 1-4x the cost of the charging equipment itself – not to be overlooked in the analysis.

On the vehicle side, sticker price premiums run from 10% for some sedans to 200% for some heavy-duty platforms. However, some models of EVs can be less expensive than their internal combustion counterparts when EV incentives are applied.

There are both state- and federal-level incentives that may include tax credits and cash rebates. Currently, states that are offering an EV tax credit or rebate include California, Colorado, Delaware, Illinois, Maine, Maryland, Massachusetts, and New York.

See which models qualify for the federal tax credit.

Savings Over Time

The long-term cost savings of an EV has two parts: fuel and maintenance.

Fuel Savings

The fuel savings are a function of the fuel cost and fuel efficiency of the respective gasoline and electric platforms across the distance driven. By normalizing a $/mile fuel cost to each platform, we can determine a $/mile savings to apply across the miles driven.

Here's an example:

At $3.00 gas, 30 MPG, $0.20/kWh energy, and 3.0 miles/kWh, the fuel savings is $0.033/mile.

If you are driving 12,000 miles per year, that is around $30/month of fuel savings.

Of course, the answer is specific to the vehicle use case, including vehicle type, location, and driving patterns.

Fuel Calculation Breakdown

Gasoline Vehicle Cost per Mile:

  • Gasoline cost: $3.00/gallon
  • Vehicle efficiency: 30 miles per gallon (MPG)
  • Cost per mile: Gasoline cost / Vehicle efficiency = $3.00 / 30 MPG = $0.10/mile

Electric Vehicle Cost per Mile:

  • Electricity cost: $0.20 per kilowatt-hour (kWh)
  • Electric vehicle efficiency: 3.0 miles/kWh
  • Cost per mile: Electricity cost / Electric vehicle efficiency = $0.20 / 3.0 miles/kWh = $0.067/mile

Fuel Savings per Mile:

  • Gasoline vehicle cost per mile: $0.10/mile
  • Electric vehicle cost per mile: $0.067/mile
  • Savings per mile: Gas vehicle cost per mile - Electric vehicle cost per mile = $0.10/mile - $0.067/mile = $0.033/mile

Annual and Monthly Fuel Savings:

  • Annual mileage: 12,000 miles
  • Annual fuel savings = Savings per mile x Annual mileage = $0.033/mile x 12,000 miles = $396/year
  • Monthly fuel savings = Annual fuel savings / 12 = $396 / 12 = $33/month

Note that the “charging costs” above include the $/kWh energy charge from the utility as well as the monthly costs for utility services (e.g., meter fee and demand charge), network services, and charger maintenance services spread across those kWh. Depending on the specifics of the location and charger, these total monthly fees can range from $50-$1500/month.

Maintenance Savings

The maintenance savings are also highly specific to the make and model of each vehicle.

For example, Ford estimates the F-150 Lightning reduces maintenance costs by 40% over its gasoline counterpart. Since maintenance costs on combustion engines increase over time, the longer you keep the vehicle, the more you save on maintenance.

For five years on an F-150 Lightning, we would estimate the maintenance savings at $0.02/mile or $20/month for 12,000 miles annually.

However, the value of not having to take the vehicle in for maintenance is priceless.

Electric vs. Gas Maintenance Breakdown

As you can see, the economics of EVs are specific to the vehicle make/model, vehicle location, and use patterns in addition to other factors not covered such as tax credits, local incentives, and insurance costs. Of course, there may also be other benefits to consider such as brand, new product/service capabilities, and employee retention.

The key is to save more over time than the premium that was paid upfront. The concept is easy, but the specifics of the calculation can be complex.

Merge has in-depth experience with operational and analytical assessment or electrification on a VIN-by-VIN basis.

If we can help in your electrification journey, get in touch.

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