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How electric cars will save you money

Marc Gunther's picture
FORTUNE magazine

Marc Gunther is a writer and speaker who focuses on business and the environment. He worked for 12 years as a senior writer at FORTUNE magazine, where he is now a contributing editor. His most...

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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.

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Geoffrey Styles's picture
Geoffrey Styles on Sep 24, 2010


“You can challenge my assumptions”

Who could resist that invitation?  Seriously, though, comparing the economics of a Leaf to a 20 mpg gas guzzler stacks the deck too far.  Hybrids and diesels have raised the bar that everything else must meet, and a Leaf is hardly a substitute for a Suburban.  Switch the comparison to a Prius, and those Gulf Coast annual fuel costs drop to about $860/year, with lifecycle emissions pretty close to those of an EV on average grid power.

I agree that EVs could be a very big deal, with the caveats you mention.  However, I believe that the economic benefits should be assessed on the basis of realistic comparisons, including to cars like your current ride.

Osha Davidson's picture
Osha Davidson on Sep 25, 2010

Fascinating article, as usual, Marc. There has been a lot written recently questioning how “green” EVs actually are, with the debate revolving around comparisons of GHG emissions from different sources of electrical generation. (I’ve included this discussion here.)

An EV running on coal-generated electricity may be more efficient (economically) than a gasoline-powered car (leaving Geoff’s point aside for the moment), but do you know how they do compare on GHG emissions?

Marc Gunther's picture
Marc Gunther on Sep 27, 2010

Osha, when it comes to the environment, I think the winners are electric cars, even given the current fuel mix that we use to make electricity. In fact, I’ve heard the claim that they would emit fewer GHG even given an all-coal-fired grid. But assuming (hoping?) that the grid gets cleaner, the benefits of electric cars of course grow too. What I like about electric cars is that they enable us to see our way to a very low-carbon transportation system that does not sacrifice personal mobility.

Geoff, you’re right that I may have stacked the deck a bit. I was probably also unfair to hybrids which, if they double fuel mileage, can also be a good deal for the owner who drives many miles a year. One reason why electric cars will arrive faster in Europe than in the US is that gas there costs so much more.

One last thought–I wish electric cars were here NOW because my Honda Fit was, I think, destroyed this weekend in an accident. No one was hurt fortunately but I am now likely to be in the market for a new car….and the way it was crushed has led my wife to urge me to buy a bigger car!


Geoffrey Styles's picture
Geoffrey Styles on Sep 27, 2010


Sorry to hear about your accident.  It’s an unfortunate reminder that fuel efficiency is only one among many factors influencing consumers’s car choices.  The last time I was in the market for a car, a 5-star crash rating was our top criterion, as it would be for the next car, too.  I’ll be watching for the crash ratings of the Volt and Leaf with great interest.

Anto Budiardjo's picture
Anto Budiardjo on Sep 28, 2010


I look it this another way, the cost of a Nissan Leaf after tax rebate is around $25,000 (less in some states). That is $5,000 less than the average price of cars in the US, and it’s quite a nice car. So if I was in the market for a second car to commute let’s say 20-50 miles each day (well within the 100 mile range) and was in the market for a car in that price range, why would I not buy one! I say second car as obviously many families in the US have two cars, and assuming the other car is a gasoline car, to be used for longer journeys, the whole thing is somewhat of a no-brainer.

I think we will all be quite surprised at the take up of EVs, as long as we don’t have any negative press or issues with them. And also the manufacturers will start to use EVs as a cool factor and compete based on them, on price, range and other normal cool-car features.

We’re looking forward to the discussion at the EV Grid Summit at GridWeek next month. The interaction between EVs and Smart Grid is going to be very interesting.

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