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.
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.
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.
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.
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.
- The primary cost of owning a car is maintenance and depreciation, not gas.
- That cost is 2-3 times cheaper for electric cars than gas ones.
- Even at the reduced cost of gas, electric cars are still cheaper to power than any production gas car.
- 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. 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!