Is an Electric Vehicle Right for Me Financially?

Electric vehicles (EVs) have become increasingly popular, with sales growing nearly 37% since 2021.¹ With concerns around rising gas prices, combined with an increased selection (it’s not just Tesla anymore), it’s no surprise that consumers are looking into electric vehicles as their next car.

Buying a new car is always a big decision, but making the switch to an electric vehicle adds additional factors to consider, such as the initial upfront costs, electric car maintenance costs and lifestyle. So, are electric cars worth it? Let's take a look at the key factors to consider when deciding if an electric car is financially right for you.

Average Cost of Buying an Electric Car

Are electric cars cheaper than gas? No. The average cost of an electric car is $56,437, up 6.2% since November 2020, and nearly $14,000 more than the average cost of a gas car.²

However, these numbers do not take the benefits of owning an electric car, total cost of ownership or the price of gas into consideration.

Benefits of Owning an Electric Car

When considering if an electric vehicle is right for you, there are many benefits that may offset the initial upfront investment.

Financial Benefits:

1. Tax Credit
   The IRS offers a significant tax credit ranging from $2,500 to $7,500 for certain newly purchased electric vehicles. There are a lot of conditions in place to receive the tax credit, so be sure to do your research and make sure the electric car you’re interested in qualifies. The credit phases out after the model reaches 200,000 vehicles sold, so certain highly popular models are no longer eligible.

2. No More Paying for Gas
   Some people comparing the cost of filling up vs. charging up ask, "Is charging an electric car cheaper than gas?" The answer is yes. The national average price of a gallon of gas is $4.12³. The average size of a gas tank for smaller cars is 12 gallons⁴, meaning it would cost nearly $50 to fill up (and much more for larger vehicles). However, the average cost to charge an electric car is equivalent to paying just $1 per gallon of gasoline, making it approximately 75% cheaper to “fill up” at a charging station vs. a gas station. The cost of electricity is also a lot less volatile than the cost of gasoline, so there’s no need to worry about dramatic increases in price, unlike with gas.

Other Benefits:

1. Less Maintenance
   Since electric vehicles have less moving parts and fluids than their gas counterparts, they require less maintenance. This means you won’t need to budget as much for car repairs.

2. Time
   If you’re able to charge your car at home, then you’ll save a lot of time by not having to go to the gas station. Additionally, depending on state and local regulations, you may be eligible to drive in the carpool lane with an EV, saving you time in traffic.
   

3. Better for the Environment
   When you drive an electric vehicle, you can feel good that you’re doing your part to help keep our earth healthy — electric cars emit fewer greenhouse gases and air pollutants.

4. Silence
   Electric vehicles are extremely quiet, a characteristic that is often sought out by luxury carmarkers. EV owners can enjoy a peaceful, smooth car ride.

Hidden Costs of Owning an Electric Car

Although EVs offer many benefits, there are also other electric car costs to consider:

• Insurance Costs
  Unfortunately, electric cars are typically more costly to insure than standard vehicles because if you get in an accident, the price to replace them is higher.

• Charging Equipment
  While some electric car owners are fine charging their vehicles at public charging stations, it can be more convenient to have your own charger at home. While costs vary based on installation fees and the level of charging station, having your own charger installed can cost anywhere from $1,000 to $2,000.⁷

• Electricity
  If you do decide that installing your own charger is worth it, then you’ll also need to consider the cost of electricity when you use it. The average monthly cost of electricity for charging an electric vehicle is $55,⁸ but that will vary depending on how far you drive and how often you need to charge.

So, Does it Make Sense to Buy an Electric Car?

According to recent calculations, the total lifetime cost of ownership of an electric car is about $4,700 less than a standard gas car.⁹ However, to determine if buying an electric car is right for you, consider the following:

• Initial Investment
  Since the upfront cost of an electric vehicle is more, you’ll need to ask yourself (and honestly answer) two very important questions:
  
  1) Is it worth it to buy an electric car?
  2) Can I afford an electric car?
  
  Make sure you’re financially prepared to make the large initial investment and/or higher monthly payments on your car loan.

• Maintenance and Insurance
  Although electric cars cost less to maintain, they are higher to insure. Make sure you factor these costs into your budget and that you have an emergency fund established in case of an accident where there is damage to the vehicle.

• Need
  Do you really need a car right now, or does your current car still have a few more miles left in it? Car prices recently hit an all-time high. In fact, buyers paid 12.2% more for a new vehicle in January 2022 compared to January 2021. So, make sure you really need a new vehicle (electric or otherwise) before making a purchase. While no one can predict the future, analysts estimate that car prices will decrease in 2024. If you are able to wait, start increasing your savings now so you’ll be able to make a larger down payment when it’s time to purchase your new electric vehicle.

• Lifestyle
  How often, how far and where you drive are major factors in considering the purchase of an electric vehicle. If you live in a rural area with limited access to chargers and make frequent back road trips, then buying an electric car may not be right for you at this time. But, if you live in a more urban or suburban area and drive an average amount on highways near charging stations, then it could make sense. Check to see charging stations near you before purchasing an electric vehicle. Also consider if you’d want to make the investment to install a charging station at your home.

• Beliefs
  If you’re passionate about the environment, then you really can’t put a price on doing your part to help decrease pollution.

Hit the Road

We hope that understanding more about electric car costs helps you make the right decision for your finances. Ultimately, only you can decide if it is worth it to buy an electric car.

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1. https://www.forbes.com/wheels/news/ev-sales-soar-in-2022/
2. https://www.prnewswire.com/news-releases/eight-straight-new-vehicle-prices-mark-another-record-high-in-november-2021-according-to-kelley-blue-book-301442015.html
3. https://www.kbb.com/car-news/gas-prices-rise-after-weeks-of-decline/
4. https://www.mcnallyinstitute.com/how-big-is-small-engine-fuel-tank/#3
5. https://afdc.energy.gov/vehicles/electric_maintenance.html
6. https://theicct.org/sites/default/files/publications/EV-life-cycle-GHG_ICCT-Briefing_09022018_vF.pdf
7. https://blog.carvana.com/2021/07/how-much-does-it-cost-to-install-an-ev-charger/
8. https://www.kbb.com/car-news/how-much-does-it-cost-to-charge-an-ev/
9. https://www.cnbc.com/2022/03/19/cost-of-charging-ev-vs-gas-prices.html
10. https://www.consumerreports.org/car-pricing-negotiation/average-new-car-price-all-time-high-a4060089312/
11. https://www.caranddriver.com/news/a39357957/car-prices-high-when-will-change/
12. Ibid.