3 Ways Consumers Overestimate Their Electric Cars

NEW YORK (TheStreet) -- When you talk to an electric car owner, chances are you will hear how much better an EV (electric vehicle) is compared to a regular gasoline/diesel car, and why you absolutely must buy one. I have identified three reasons EV enthusiasts often overstate their case.

Reason Number One: Poor Objects of Comparison

Most EV buyers compare their new purchase with their previous car, which was on average three to 10 years old. This makes for an unfair comparison. It is not apples-to-apples.

Speaking of apples, it reminds me of how people who get their first smartphone in the form of an iPhone are certain that it's vastly superior to the best Android smartphones on the market. They are comparing their iPhone with whatever old junk they used before 2008 or 2010.

In that comparison, of course the iPhone is vastly better. However, it says nothing of how it compares with today's best Android smartphones. They just didn't compare it against a Nexus 5, Samsung Galaxy S5 or something equivalent.

It is absolutely true that even experienced automotive journalists who compare all sorts of cars all day long mostly agree that EVs are smoother to drive in city traffic. An electric motor has superior torque and linearity and there is no downshifting or other jerky behavior.

However, in comparison to what? Clearly the EV will be vastly superior to almost any three- to 10-year-old car, even a premium one. But to the best $30,000-$60,000 cars of today as opposed to three to 10 years ago?

A lot has happened to car performance over the last three to 10 years. The newest cars have far better transmissions, shifting far more smoothly. Many mid-range cars now have up to eight or nine gears, and the best CVTs (continuously variable transmissions) are butter-smooth, too.

Furthermore, the gasoline/diesel engines themselves are smoother than they used to be, and are better isolated from noise. On top of that, all new cars have better NVH (noise, vibration and harshness) than they used to have, even a couple of years ago.

EV buyers who lavish praise on their cars have to be judged with suspicion. In many or most cases, they have not driven the best of what the competition has to offer today, as opposed to three to 10 years ago. The right answer may still be to get the EV, but the margin of superiority is smaller.

Reason Number Two: Front-Loaded Benefits

There are two reasons happiness in EV ownership may be front-loaded when compared to buying a regular gasoline or diesel car. Let's deal with them in turn:

A. Battery depreciation

It is easy to over-estimate savings from EV ownership because an EVs major cost is back-end loaded. An EV has superior maintenance and operating costs but it does get hit with a big one eventually and that's the battery swap.

Estimates vary widely as to when an EV is due for a battery swap and how much it will cost. In many cars, one might imagine it will cost over $10,000 and happen after 10 or more years. Then you have to subtract the value of the existing battery, which will be used in some secondary application (energy storage, other form of recycling).

One could envision $10,000 over 10 years, minus a 50% recycling recovery. That means $500 per year. How often do you see that listed on an EV cost comparison against diesel or gasoline?

Then you have other "happy" calculations in favor of EV ownership. Let's take that $10,000 battery, for example. What about opportunity cost of capital? If you pay $10,000 more for the car up-front, than an equivalent gasoline/diesel car, you might have a 5% opportunity cost of capital. That's another $500 per year.

Well, $500 per year in battery depreciation and $500 per year in opportunity cost of capital -- that's $1,000 per year. If I drive a Prius 12,000 miles per year (the U.S. average) and I pay $4 per gallon, I have an annual gasoline bill of $960 if you assume $4 per gallon.

So right there, even if you assume that you pay zero for gasoline, your entire EV economics is gone. $960 in annual gasoline savings is offset by $1,000 per year in battery depreciation and opportunity cost of capital. Hmmm.

EV enthusiasts often overlook a full cost calculation. They engage in "happy-math" -- conveniently counting all cost of owning a diesel/gasoline car, but overlooking the EV's "invisible" costs.

Obviously a gasoline/diesel car will have far higher annual maintenance for several years (oil changes, etc) -- unless it's included in the price of the car (BMW offers four years of free maintenance). However, a true economic calculation needs to include lifetime economics, with full depreciation, and including all costs -- invisible as well as visible.

B. Corner-Case Driving Needs

Electric car advocates never cease to tell us how much you can do with an 85-mile electric car, or any other range EV. Basically, the argument goes, "99% of the time, I never drive more than 80 miles per day." Or some such numbers.

That may be true: 99% of the time, such-and-such won't happen and so you are fine 99% of the time.

In the early days, that luck could make an EV owner very happy. There is basically no problem.

Until, there is a problem.

One day, you forget to charge or you had to drive a little longer. Then you get a call to drive even longer. Someone invites you to dinner, drinks, a meeting, an event, whatever: "Be here in an hour!"

It's snowing. It's 20 degrees below. It's uphill. At your destination, the charger is broken, occupied or turns out to be located one mile down the road instead of where you were going.

Ouch. Now you're not in the "99% of the time, 85-mile range is enough." Or 270 miles, as it may be.

99% of the time, I don't need insurance -- for house, health or car. 99% of the time, I don't need to wear a seat belt either. So let's not do it!

When you first stop paying your insurance bills, you might save $1,000 per month -- house, health and car combined. How lovely! I now have $1,000 more in my pocket every month. I tell everyone to follow my advice: This is an easy way to save $12,000 per year.

It is like free candy -- until you get a toothache. At some point most people will have a bad experience: having to go somewhere and they can't drive there. Showing up at a broken charger. Showing up at a charger thats occupied. Forgetting to charge.

Reason Number Three: Failing to Admit a Mistake

People who buy an EV are heavily invested. They just paid anywhere from $20,000 to over $130,000. If something did go wrong or otherwise disappoint, it may be hard to admit it. Better just point out the positive side.

Here is an example: Chevrolet Volt owners and Nissan (NSANY) Leaf owners generally seem almost equally enthusiastic proponents of their car choices. However, when you survey owners, the Volt buyers are a lot happier with their choice. Why do you think that is?

The reason most likely is that Volt owners have a gasoline backup, ensuring they never have to think about getting stuck or worrying about whether they can drive somewhere. Yet, in terms of "cheap talk" -- convincing friends, colleagues and strangers alike -- both kinds of owners sound approximately equally enthusiastic.

The bottom line is this: Various forms of electric cars are lovely to drive. However, their owners have three reasons to over-estimate their superiority. Make sure to look through these three reasons in terms of incorporating them in your analysis.

When someone talks about how wonderful their new electric car is, ask them: How many other brand-new, 2014-model, similarly priced, gasoline/diesel cars did you drive for comparison purposes?

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

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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