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Electric Cars: The Right and Wrong Reasons for Buying

Stocks in this article: GM TM

NEW YORK ( TheStreet) -- The purpose of this article is to sort out some of the main arguments for and against electric cars.

For reference and clarification, by "electric" I hereby mean both pure electric cars and those accompanied by an on-board generator, such as the Chevrolet Volt or the upcoming BMW i3. Basically, any car that plugs into a wall in order to store energy in a battery that will (help) drive the car.

1. "Electric cars save money on gasoline."

Duh! Sure they do. But how much? Anything worth writing home about? Let's take a simple mathematical example. Consider the alternative if you are pondering buying an electric car. This alternative purchase could reasonably be a regular Toyota Prius, which can be had for $25,000.

The average American drives 12,000 miles per year. The Prius yields 50 miles per gallon. That's 240 gallons per year. Multiply by $4 per gallon and you have $960 per year.

Let's stop there for a minute. Ponder that number -- $960 per year. That's the maximum you can save, assuming your cost of electricity is zero.

How much are you willing to spend upfront in order to save $960 per year? $5,000? $10,000? What's your payback calculation?

$960 per year is not nothing, but how large a percentage of your annual spending budget is it? I buy two lattes a day at my favorite coffee shop. They're $3.75 apiece, or $7.50 a day. Multiply by 360 days, and you get $2,700 per year. Whoops! There went your best-case, electric-car gasoline savings, multiplied by three.

2. "Electric cars save money overall."

Now you're talking. Electric cars may save you money outside of spending on gasoline. Specifically, you can save money on service and maintenance.

The calculations here are complex and depend heavily on assumptions. For starters, many new gasoline cars have free service for two or three years.

That said, in many electric cars you don't have any oil changes, transmission issues, timing belts or spark plugs to worry about. Even in range-extenders such as the Volt, here are fewer of them. Clearly this will save the electric car owners serious money over a car's lifetime.

After the initial "free service" period, whether one year or three years or longer, how much should one assume for service for a used car, per year, that's being driven 12,000 miles per year? I would say the minimum is $600 per year, but at least over time it is likely to average a lot more. Some pay thousands per year in car service, for a 5- to 30-year-old car.

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