Electric Cars: The Right and Wrong Reasons for Buying

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

For reference and clarification, by"electric" I hereby mean both pure electric cars and those accompaniedby an on-board generator, such as the Chevrolet Volt or the upcomingBMW i3. Basically, any car that plugs into a wall in order to storeenergy 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 alternativeif you are pondering buying an electric car. This alternativepurchase could reasonably be a regular Toyota Prius, which can be hadfor $25,000.

The average American drives 12,000 miles per year. The Prius yields50 miles per gallon. That's 240 gallons per year. Multiply by $4 per gallon andyou have $960 per year.

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

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

$960 per year is not nothing, but how large a percentage of yourannual spending budget is it? I buy two lattes a day at my favoritecoffee shop. They're $3.75 apiece, or $7.50 a day. Multiply by 360days, 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 ofspending on gasoline. Specifically, you can save money on service andmaintenance.

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

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

After the initial "free service" period, whether one year or threeyears 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 theminimum is $600 per year, but at least over time it is likely toaverage a lot more. Some pay thousands per year in car service, for a5- to 30-year-old car.

The issue doesn't stop there, however. There are other things forwhich we need to account.

Let's start with the depreciation of the battery. Different electriccars have batteries that cost anywhere between $2,000 and $32,000upfront. So gee whiz -- the cost of depreciating this battery willvary widely.

Over how many years is an electric car's battery warrantied? Mostly eightyears, sometimes 10. That doesn't mean that the useful life is eight or10 years. That's just the minimum. Is the average 15 years? 20?More? This is obviously in dispute.

Let's take a simple example of an electric car battery having anuseful life of 15 years and cost of $15,000. That's $1,000 per yearin amortization/depreciation. That $960 per year in gasolinesavings? Poof!

The point here is the cost argument overall is in dispute. Itall depends on the assumptions. Clearly, over time these numbers aremoving in the electric car's favor at this point, mostly as a resultof falling battery prices.

You will hear that batteries are falling in cost from 5% to 8% peryear on average. I believe they are falling in cost a lot fasterright now for car applications. It's not just about the basicbattery chemistry but also cooling, heating and packaging thesebatteries inside a car. We are probably in the middle of a period inwhich car battery costs are falling much, much faster than 8% per yearright now.

Overall savings will also depend on your personal circumstances andhow much you are driving. One big variable: How much are you payingfor electricity? It makes a world of difference if you are paying 5 centsper kWh or if you're paying 20 cents.

What about cost of gasoline over the lifetime of the car? This isobviously the other side of the coin. Again, it makes a world ofdifference if you are assuming $3 per gallon, $6 per gallon or evenworse.

If you don't drive very much, you may be better off with a gasolinecar. On the other hand, if you're driving 35 miles to work every day,another 35 miles coming home, have access to inexpensive electricity,and you are guarding yourself against sharply increasing gasolineprices, then an electric car may be for you -- strictly based on cost.

3. "Electric cars are good for the environment."

This is a hot-button issue I am not going to fully address, let alonefrom a public policy perspective. From a personal perspective, however,it's a different story.

No matter what you assume for the environment, your ability as asingle consumer of an electric car to affect it is essentially zero.Yet, others -- such as me -- don't agree with the premise that there isanything wrong with the environment. So environmentalarguments don't bite on me and many others.

But wait -- there is actually one area where electric cars areindisputably better for the environment: Noise. Whatever otherdemerits electric cars may or may not have, one thing is for certain:They do cure noise pollution. Imagine walking down Madison Avenue inNew York City and not hearing any meaningful noise from all of thesecars. Imagine living on the third floor in midtown Manhattan and sleeping withthe window open.

4. "Electric cars drive better."

This is the one that matters, folks. In the end, until the othercost-related arguments become more clear or are otherwise settled, it'sall about the actual driving experience.

Ask your fellow Americans who are actually driving electric cars everyday. What do they tell you? Let me suggest that almost all of them-- 99%? -- will tell you their electric car simply drives betterthan a gasoline or diesel car.

Why is that? It's similar to having an SSD in your PC as opposed tohaving an HDD. It's about fewer moving parts, nothing spinningthousands of times per minute.

An electric car has fewer parts overall, and fewer moving parts. Itgives you 100% of the torque right away. It doesn't require atransmission, and it doesn't make any meaningful noise. Pressing theaccelerator simply has a very different feeling. If you haven'tdriven one, you wouldn't know.

Then there's the braking. Electric cars have different degrees ofregenerative braking. Some cars, such as the Volt, offers multiplesettings for this. What this means is that when you let up on theaccelerator, the car brakes as the car recaptures the energy into thebattery. This means that unless you need to brake very sharply youdon't need to touch the brake pedal.

We refer to this as "one-pedal driving." Once you get used to it, itis vastly preferable to having to press the brake pedal all the time.Again, this is difficult to explain to people who have not driven anelectric car.

Bottom line: Get one, but not for the wrong reasons.

There are some reasons people give for buying an electric car: Savingon gasoline, saving money overall, saving the environment. As I haveshown, these arguments are either dubious, invalid or at least insevere doubt. They can also be at least somewhat accurate, dependingon a person's situation and assumptions.

That said, the rational reason to buy an electric car is that itsimply drives better. Unlike the other arguments, it's also the onethat is almost impossible to discuss without first-hand knowledge gained from the experience of driving one.

For this reason, I recommendyou test-drive an electric car before you make up your mind. Isuggest the probability you will like it is very high.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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