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If you’ve been to a gas station in the last couple of weeks, you already know the big news: gas prices are down, hard. Prices are expected to drop below $2.00 per gallon before the end of the month.

The reason for falling oil prices is complicated — a number of factors, including growth of non-petroleum fuels like natural gas, have conspired to drive down demand while increasing supply. As a result, fuel is cheap, at least for now.

For most people, this is good news — gas is used by everyone, and making it cheaper is good for the economy. That said, with any shift this big, there are always losers. Russia’s economy, which depends on their petroleum exports, has tanked in the wake of the news, sending the ruble crashing to record lows. And, if you believe the swath of articles published in the wake of the price crash, this news also spells the end of electric cars like the Tesla Model S and the Nissan Leaf.  That is disappointing if (like me) you think electric cars are the most exciting automotive technology right now, with the possible exception of self-driving cars Here's How We'll Get to a World Filled With Driverless Cars Here's How We'll Get to a World Filled With Driverless Cars Driving is a tedious, dangerous, and demanding task. Could it one day be automated by Google's driverless car technology? Read More .

The good news, for fans of electric vehicles, is that the situation is not as bad as it might look. There are several reasons that gas prices are not the most important variables at play in the success of electric cars.

Target Markets

Maybe the biggest argument against the death of electric cars is that, as of now, the most popular electric car is expensive. The Tesla Model S (the current best-selling electric car) starts at $69,900, and is in the luxury / sports car territory.  Most of the people buying electric cars are doing so either because of the performance advantages of high acceleration electric motors or the allure of a greener lifestyle. Anyone with seventy thousand dollars to spend on a new car isn’t worried about gas prices one way or the other. At least in the short term, the price of gas isn’t going to hurt Tesla any.

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With that being said, it’s possible that the drop in fuel prices could limit the expansion of budget electric cars, like the Nissan Leaf and the Tesla Model 3 (due in 2017), both aimed to be under $35,000. Let’s take a closer look at the value proposition of budget electric cars to see if that makes sense.

What Cars Really Cost

Because the price of gas is a very visible and painful expense, many drivers are under the impression that it’s the biggest expense that car owners incur.  However, other costs add up more than you’d think.  The biggest factor in car operation cost is maintenance and depreciation.

The average new car is owned for just under five years (a figure that’s at an all-time high).  During that time, a $30,000 car will depreciate by more than $17,000 due to damage and wear. This works out to a per-year cost of about $3,600 a year. At the same time, you can expect to pay about $1,200 a year for routine maintenance. That brings the total cost of owning the car up to $4,800 per year before gas is even considered.

That’s more than double the estimated $2000 a year the average American spent on gas during the era of sky-high gas prices.

This is important because maintenance and depreciation are where electric cars shine. A gas car is a complicated machine that runs at high temperatures and has many moving parts. Think about the pinging sound engines make when they cool down — that’s a lot of thermal stress! Gas cars depreciate quickly, because of course they do.

Despite the best efforts of their engineers, a gasoline engine and conventional transmission start to disintegrate as soon as you start the engine for the first time. Belts break, cables snap, metal cracks under thermal stress, adulterants build up on components, lead-acid batteries wear out, and gears dissolve due to friction. The high price of maintenance is just the cost of forestalling the inevitable.

Compare this to electric cars, which operate at low temperatures and have a handful of moving parts.  Oil changes for the simplified gear box are required every fifteen years.  Due to this, electric vehicles degrade and depreciate more slowly.  This intuition is validated by a quick look at the price of used Teslas on Ebay.

The biggest expense is the degradation of the lithium-ion battery, which loses about 15% of its capacity per 100,000 miles.  The average American drives 13,000 miles per year. Let’s say that batteries need to be replaced when 30% of their capacity is gone.  That should take about 200,000 miles, or fifteen years. Since the batteries are $12,000 new, that means a total depreciation of $800 per year — six times cheaper than a gas powered car.

Even assuming that other maintenance costs are double that of the battery itself, the trend is clear: the real cost of owning an electric vehicle is going to be less than a gas automobile, regardless of the price of gas. Furthermore, gas and diesel engines are mature technologies that aren’t going to get much better in the future. Electric vehicles, in contrast, are in their infancy. In the next few years, we can expect the cost advantage of electric cars to improve with battery and motor technology New Battery Technology Recharges in Two Minutes, Lasts Twenty Years New Battery Technology Recharges in Two Minutes, Lasts Twenty Years There's a new battery technology on the horizon, and there's a good chance it's going to change the way you use your devices Read More .

Even at $2.00 a gallon, a 22 MPG car will still cost $1181 in fuel over the course of an average year. That’s nearly triple the $454 a Tesla will cost in electricity per year at a national average twelve cents per kilowatt hour. It’s not as dramatic as the savings when gas was three times that expensive, but it is still significant. A gas car would need to average 57 MPG under typical driving conditions in order to achieve that same price, something that no production car can achieve.

Why Electric Cars Aren’t Doomed

That’s a lot of algebra, so let’s take a second and sum up some conclusions.

  1. The primary cost of owning a car is maintenance and depreciation, not gas.
  2. That cost is 2-3 times cheaper for electric cars than gas ones.
  3. Even at the reduced cost of gas, electric cars are still cheaper to power than any production gas car.
  4. Electric cars have performance and environmental value for consumers, beyond the dollar-for-dollar savings.

In other words, the ding to the value proposition of electric cars caused by the drop in the price of gas is small and shouldn’t hurt electric vehicle adoption much.

Right now, the biggest hurdle to electric vehicle ownership isn’t the value proposition — it’s the limited charging infrastructure Recargo: Finds Electric Car Charging Spots Near You (iOS) Recargo: Finds Electric Car Charging Spots Near You (iOS) Read More . Electric vehicles will succeed or fail based on the growth of that infrastructure, not the cost of gas.  For now, reports of their demise have been great exaggerated.

Will your next car be electric? Are you most concerned about safety? Cost? The environment?  Let us know in the comments! 

  1. Zhong
    February 13, 2015 at 4:33 am

    So over time will electric cars be priced lower? Or even today, owning an electric gives the owner a long term value?

    • Andre Infante
      February 13, 2015 at 5:19 am

      Electric cars are cheaper to own than gas cars. Right now, the good electric cars are expensive enough that it's unlikely that the savings would be worth it for consumers. That said, the technology is improving rapidly, and that won't be true in the near future, as the cost of electric vehicles drops to a level that's competitive with traditional gas automobiles.

    • Guy
      February 20, 2015 at 1:26 am

      Hey Zhong,

      I believe that over time, electric cars will come down to even the lowest current new car prices. The same way the $40,000 LCD TV from the mid-90s did and the $1,000 CD player from the early 80s did.

      Like any product, the first one off the line cost millions to make. The millionth one of the line cost maybe thousands to make. With Elon Musk open sourcing a lot of the Tesla patents, other big and small car manufacturers should start coming online with comparable cars. Maybe not next year, but eventually.

      I live in rural Canada, almost as rural as one can get without being in the Arctic, and I've seen 2 Tesla S models this year. I remember when sighting a Mercedes or Jaguar was that rare. Now the things are all over the road. I expect the same with Tesla before long.

  2. Stanley
    February 13, 2015 at 12:26 am

    Maybe I should buy two cars. One for every day use and one for so called "road trips"!

  3. Stanley
    February 12, 2015 at 11:24 pm

    A whole 30 minutes. Gee maybe I should reconsider! Not. Like I said Recharge time verses filling up? The electric car will be dead until that is resolved.

    • Andre Infante
      February 12, 2015 at 11:27 pm

      If a 30 minute wait a few times a year is a deal-breaker for you, that's your business -- however, that's not actually that big a deal for most people, particularly given the potential savings on gas when the price comes down a little. Claims of the electric car's death are, at this point, hard to justify.

    • dragonmouth
      February 13, 2015 at 2:26 pm

      "If a 30 minute wait a few times a year"
      Maybe if you live in a city and can walk or take public transportation. But if you live in a city, chances are you do not really need a car. An average driver drives 13,000 a year. Even with Tesla's 250 miles per charge, that means charging once a week. If you got duped into purchasing a Chevy Volt, you would have to charge at least once a day, if not more often, considering it sruggles to get 40 miles per charge. Repeated waiting for 30 minutes to charge your Volt, will get old very quickly.

      " Claims of the electric car’s death are, at this point, hard to justify. "
      Electric cars will not die, they just won't get popular as the eco-nazis would want and/or have us believe. There will always be the Bill Nyes and Ed Begley Jr.s of the world willing to spend their extra cash on green items.

      For electric cars to become popular, they would have to become comparable to gasoline-powered cars, i.e. be priced the same, get similar mileage per fill-up and have similar fill-up time.

      BTW - electric cars may be non-polluting themselves, if you discount the batteries, they just move the point of pollution from the tailpipe to the smoke stack. So, indirectly, electric cars DO use petroleum, not to directly power them but to generate the electricity that powers them.

  4. Stanley
    February 12, 2015 at 10:37 pm

    Recharge time verses filling up? The electric car will be dead until that is resolved.

    • Andre Infante
      February 12, 2015 at 10:44 pm

      So, the thing that's important to remember about that is that for 99% of the trips people make, charging times aren't even relevant, because the trip is shorter than the hundreds-of-miles range on the vehicles, and presumably the vehicle is being wall-charged overnight at home.

      For road trips, which is where recharge time becomes an issue, the supercharger stations can get your car charged enough to reach the next station in 30 minutes, in most cases. Which isn't too bad if you take it as an opportunity to stretch your legs or grab a meal. It's inconvenient, but it's a rare use-case for most people, and not such a huge inconvenience that it fundamentally changes the nature of the experience.

      Plus, with the battery swap system, you can get the total refuelling time down to a couple of minutes, once that's fully rolled out, although there are a few caveats on that.

  5. dragonmouth
    February 12, 2015 at 10:02 pm

    Electric cars are not doomed but unless their prices come significantly down, electric cars will remain a niche product. You can talk all you want about depreciation, wear & tear, cost of operation, etc. but the biggest expense in owning the car is the purchase price. And FYI, cars depreciate whether they are driven or not. In 5 years you may be able to sell an undriven car for more than one that has been driven but you will never be able to get your purchase price back. And that's because of depreciation.

    "Prices are expected to drop below $2.00 per gallon before the end of the month."
    Your numbers are out of date. The lowest average gas price is now in the $1.60s range. 30 out of the 50 states have average prices below $2.00. However, in the past week, gas prices have started going back up.

    "The reason for falling oil prices is complicated"
    It can be made complicated by introducing extreneous factors but basically the reason gas prices have gone down is that OPEC decided not to cut back on their production. Natural gas production has not increased enough and there has not been enough change from pertroleum fuels to non-petroleum fuels to affect gasoline prices.

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