Study: Electric Cars Are Cheaper to Own, But Not in All Cities

By · November 18, 2015

EV Costs, Graph by ICCT

From the earliest days of the plug-in vehicle market, sales have clustered around specific geographical areas. That’s due to prevailing attitudes about the environment, but also in no small part to varying state and local government incentives. For example, it’s cheaper to own an EV in San Francisco than in New York City—but how much cheaper?

Fortunately, in 2014, the International Council on Clean Transportation (ICCT)—the same outfit that revealed the recent Volkswagen diesel scandal—tracked down the value of support for plug-in hybrid and battery electric vehicles in 25 major cities. Its findings are almost a year old, but nonetheless provide insight about the value of incentives and infrastructure to spurring plug-in vehicle adoption.

The ICCT developed formulas to calculate the cost benefit of public charge networks and carpool access to plug-in drivers in each city, and added those benefits to the available purchase incentives in each city. The total value of support for battery electric vehicles—projected over the life of the vehicle—ranged from just a few hundred dollars in Detroit to more than $6,000 in Atlanta.

In a recent blog post, the ICCT attempted to illustrate how this range of support can effect the lifetime cost of ownership equation for EVs.

EV Costs, Graph by ICCT

The Council found that the total cost of ownership for EVs only fell below that of gas cars in four of 25 cities—though they beat hybrids in all 25 markets. When compared to 2014 sales numbers, the correlation between the leaders in incentives and market share is striking. Four of the top five cities for EV sales also rank among the places with the lowest cost of ownership. Particularly notable is Atlanta, where state incentives of up to $5,000 spurred electric vehicles to make up roughly 3 percent of new vehicle sales in 2014.

Cautionary Tale: Georgia’s Dramatic Decline

Georgia’s generous EV program was passed into law in 2001. That’s 10 years before the introduction of the Nissan LEAF and Chevy Volt. For a long time the program was not used and nearly unnoticed. As late as 2012, total credits barely topped $1 million. But in 2013 and 2014, car shoppers took notice just as more EVs became available in Georgia—and plug-in vehicle sales skyrocketed. Not only did the $5,000 tax credit bring the upfront cost of EVs within the range of ICEs, it pulled their lifetime cost of ownership several thousand dollars below gas-fueled cars.

The rate of electric vehicle adoption in Georgia led all states in the first half of 2014, making up a still modest 1.6 percent of the total car market.

As Georgia buyers became more aware of their state’s EV bargains, the cost of the program began to rise—hitting $14 million in 2013. In a conservative state like Georgia, line items that big attract attention, and in early 2015 Georgia passed the Transportation Funding Act, which completely cut off tax credits for plug-ins. In fact, it imposed a new $200 registration fee for EV owners.

In the months between the law’s passage and the July 1 start date, EV sales in Georgia spiked to all-time highs as consumers raced to take advantage of a good deal while it lasted. But by August, plug-in vehicle sales had fallen 85 percent off its June high of 1,338 units. In August, total electric vehicle sales fell to just 66 cars.

The dramatic decline of Georgia’s electric vehicle market after the elimination of state tax credits illustrates just how important government support for electric vehicles remains in the early stages of adoption.

Double Whammy: Low Incentive and Low Gas Prices

While the ICCT study successfully mapped incentives and quantified underappreciated cost benefits, like the added value of public charging networks or carpool access, it didn’t address the most important factor in cost of ownership analyses: fuel prices. At any time, the cost of gasoline and electricity in different markets varies greatly. Electricity in Washington averages roughly 7 cents per kilowatt-hour, electricity in California can cost nearly twice as much.

Moreover, there are big differences in gas prices from state to state, and over time. The ICCT used an average price of $3.48 cents per gallon for 2014, but gas prices have since fallen to about $2.86 in Los Angeles. At current prices, the ICCT’s cost of ownership projections for EVs would likely fall far behind low-cost ICEs in any city. Instability in gas prices is nothing new of course—and most experts believe that fuel prices will move up over time—but when gas is cheap, plug-ins become a much tougher sell.

Regardless of fuel prices, there’s little debate that government incentives on plug-in sales are critical at this stage. With a total budget of more than $20 billion annually, Georgia’s decision to kill its EV credit program will take about 0.10% off the state’s books, but at a great cost to clean vehicle adoption. Thankfully, even as Georgia’s incentives have expired, Delaware, Connecticut, Tennessee, and Massachusetts have passed incentive programs.

When future EV sales appear uneven—strong in predictable geographic pockets, and weak in others—we can now more clearly see economic factors at work, rather than anything intrinsic about electric car technology.

New to EVs? Start here

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