The federal government has rolled out generous tax credits for switching to an EV, and gas prices remain high, which has more people than ever asking — do electric cars really save money?
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Here, we’ll look at the data comparing the cost of EVs to what you’ll pay over the lifetime of a traditional internal combustion engine vehicle. There’s no hard and fast answer for what kind of car will make the most sense for your wallet, but this data should help you make a more informed decision.
Gas Prices Today: Nowhere To Go But Up?
On January 3, 2023, gas averaged $3.22 per gallon across the United States. Six months ago, prices were topping $5 per gallon in many regions. In short, there’s no guarantee that the affordable price at the pump you see today will still be there in a week.
For many car shoppers, the gas-price roller coaster is making EVs seem more appealing than ever. According to a 2020 study from the U.S. Department of Energy’s National Renewable Energy Laboratory and the Idaho National Laboratory, electric car owners can save as much as $14,500 on fuel costs by owning an electric car for 15 years, compared to a similarly priced and sized gas-powered vehicle.
That’s almost $1000 in savings for every year of driving. Put another way, the cost of running an electric car is thought to be the equivalent of $2 per gallon. And, considering this study looked at 2020 gas prices, it’s a reasonable assumption the savings are even more substantial today.
However, driving an electric vehicle isn’t all worry-free from a money standpoint. That’s because electricity isn’t free, even if you’re not paying for it at the pump. Here’s how the costs of owning and operating an EV break down.
Charging Costs for Electric Vehicles
Charging costs for an electric vehicle depend on many factors: where you charge (home or publicly), the time of day, electricity costs in your state, the size of the car battery, and more.
Commercial EV Charging Stations Aren’t Cheap
Public charging may be convenient, but it comes at a price. At most stations, you’ll be able to choose between level 1 (fast and costly) or level 2 (slow and cheaper).
Charging stations tend to, well, charge in different ways. Some bill by the minute or kilowatt-hour, while others charge a flat fee to hook up. Many will penalize you if you stay plugged in after the battery is filled.
According to Mach1, the cost of visiting public charging stations averages out to be two to three times more expensive than charging at home, which it estimates to cost about $0.12 per kWh. Rates for public charging vary, but tend to fall between $10-$45 to charge a car fully. Prices often increase during peak usage times, such as rush hour. This analysis assumes most electric car owners will make about 11 visits to these stations per 15,000 miles of drive time.
Note that some public spaces like grocery stores and hotels offer free charging. Take advantage of these spots, and you can save a considerable amount on your car’s operating costs. Just note that many have a time limit, meaning they will work to top you off but might not be suitable for a multi-hour charge session.
One thing to keep in mind with charging an EV on the go is the value of your time. You may spend just five minutes filling up at the pump, but it will take from 30 minutes to several hours to recharge an EV, even with fast level 3 charging. This may occasionally leave you waiting around for the battery to re-juice when you would rather be driving—a vital consideration for road trips.
Access is also an issue. Commercial charging stations are becoming far more common, but the Alternate Fuels Data Center reports there are still fewer than 50,000 EV charging stations nationwide compared to over 150,000 gas stations. Consequently, any trip that goes beyond the mile range of your EV will require some careful planning regarding where you stop.
Charging Your EV at Home: The Cost-Effective Choice?
Most electric car owners plug their vehicles in at home for nightly charging sessions. Many power companies charge more per kilowatt during peak energy usage times, so it’s common for EV owners to have their chargers set on timers to start in the middle of the night.
Along with your car purchase, you’ll need to account for the cost of setting up a home charging station for level 2 or faster charging. According to cost estimates on Fixr, you can expect to pay between $1,000-$2,500 for professional installation.
Note: while it’s possible to charge most EVs on a standard three-prong outlet, the process can take 40+ hours—not practical for most drivers.
Another advantage of EVs is the relative stability of electricity prices. While gas prices can jump $1.50 per gallon in a matter of months, electricity rates are more resistant to market fluctuations, making it easier to predict your running costs long term.
Is Home Renewable Energy the Way to Go?
One way to gain control over your home car charging is to invest in renewable energy sources like solar panels. In fact, research shows that rooftop solar panels will pay off faster for electric car charging than for your home alone, primarily since you’re offsetting the money you’d otherwise spend on gasoline.
Find a Solar Energy partner near you.
When used for electric cars, solar panel systems can generate annual returns of 10-30%, meaning that it’s possible to break even on the setup within eight years—after that, it’s all free power for the rest of the panels’ 25–30-year lifespan.
Electric Vehicle Purchase Cost: Buying New
Before you can consider fuel costs, you need to buy your EV in the first place. That might come with some sticker shock. According to Kelley Blue Book, the average electric car in 2021 cost $10,000 more than the average gas-powered vehicle. This price gap has only increased since, with the new cars going for $50k and the average EV costing upwards of $65k in November 2022.
But here’s the good news. It’s easier than ever to save money buying an EV, both through financial incentives and browsing used markets.
With the right make and model, you can expect to save up to $7,500 off the price of a used EV immediately, thanks to federal tax credits alone.
Depending on where you live, there may be other rebates available at the state level. (Plug In America lets you search for available rebates by your zip code.)
EV Prices: What’s New for 2023
Starting January 1, 2023, the Inflation Reduction Act may change how much you pay to purchase an EV. This Act will last until 2032 and aims to put EVs in the hands of more people. Previously, the federal EV tax credit was limited to the sale of 200,000 qualifying vehicles per manufacturer. Now, the Act is changing the conversation from overall sales to monetary limits and prioritizes domestic manufacturing.
Per the IRS, the general rules for qualifying vehicles are as follows:
- Have undergone final assembly in North America
- Not exceed a manufacturer-suggested retail price (MSRP) of $80,000 for vans, sport utility vehicles, and pickup trucks, or $50,000 for other vehicles
You can receive up to $7,500 for the purchase of a new EV or plug-in gas-electric hybrid and up to $4,000 for used vehicles.
As of January 2023, there is still confusion about which cars and customers will qualify for tax credits. The Treasury is expected to issue the official new rules by March.
What’s known is that many brands and models that qualified for the previous tax credits aren’t on the roster this time. This includes models made by Kia, Hyundai, and Audi—due to the fact that they are made outside North America.
You can check the Energy Department’s list of qualifying EVs for the most up-to-date information.
Buying a Used Electric Vehicle
As we’ve covered previously, used EVs are some of the best car buys available. Relatively low demand means that most are undervalued (although that might change with soaring gas prices) and rarely driven hard before reselling. And, thanks to the Inflation Reduction Act, your used EV may still qualify for a tax credit. Stick with a newer model, and it will likely have almost the same driving stats as fresh-off-the-assembly-line options.
Electric Vehicle Long Term Maintenance Requirements
Thanks to their battery, EVs have fewer moving parts than gas-powered cars. This means you can forget about oil changes, wear on transmissions, spark plugs going bad, and other minor maintenance requirements that get pricey over time. Most EVs also utilize regenerative braking. This means the motor does most of the braking, further reducing wear on the brake pads and rotors.
In fact, a report from analytics firm We Predict found that service costs were almost a third lower for EVs than gas-powered vehicles after three years on the road.
Even plug-in hybrids (which contain a battery and internal combustion engine) will have lower maintenance costs than regular vehicles. The gas engine runs less frequently in PHEVs, meaning it takes longer for it to wear down, and it needs less oil and coolant in the long run.
See Also: EVs vs. PHEVs: Which One is Better for You?
Consensus: How Much Can You Save with an Electric Vehicle?
The evidence is clear—you can save money on almost every aspect of owning an electric car, but likely not quite as much money as you’d expect – or at least initially. Over time, particularly if gas prices continue to be volatile, an electric vehicle will certainly save you money.
- EVs cost an average of $10-15k more to purchase new than equivalent gas-powered cars. However, many qualify for a $4,500-$7,500 federal tax credit and other rebates.
- Used EVs tend to be a better value than their gas equivalents. There is (usually) less demand for them, and used EVs are typically driven less than traditional vehicles before coming up for sale.
- While charging prices vary considerably, the cost to drive an EV averages $2 per gallon of gas equivalent. In contrast, gas prices have topped $5 nationwide over the past year.
There’s little doubt that owning an EV can save you money in the long run. How much you save will depend on the car you buy, your driving and charging habits, how long you keep it, and whether national gas prices continue to climb.
If you want to save as much money as possible, it’s best to follow these tips:
- Buy an EV that qualifies for the maximum federal tax credits. Used EVs now qualify for the EV tax credits as do PHEVs.
- Invest in a fast-charging station at home and use it during off-peak hours.
- Find and utilize free charging stations in your community
- Consider investing in renewable electricity generation at home, such as solar panels
The $7500 tax credit does not apply to used EVs. Tesla and GM have already sold enough vehicles to exhaust the tax credit.
You’re quite right, Don. Or at least, you were until August, when the IRA was passed. As of January 1st, 2023, there’ll be a tax credit available for used EVs and the sales cap is lifted, meaning GM and Tesla are once again eligible for the new EV tax credit (though not all buyers or vehicles will meet the new criteria).
We’ve written more about the new rules for the tax credit in 2023 here.
Thank you for your balanced and informative articles. I put solar panels (5.2 Kw) on our Scottsdale home in 2013. My electric bill when down to $170/ year which is essentially the metering, billing, “you exist as a customer”, etc charge. In 2016, I bought a Chevy Volt and love it. It charges overnight at level I. About 95% of days, I only use battery miles. I don’t fill up but just put in a couple gallons rarely to avoid stale gas but still have some back up. If we drive to, for example, the Grand Canyon, I use gas miles on the highway (at 38 MPG) and allot more electric miles to driving in a National Park or in town. So roof PV power and the Volt work fantastically well for us. More of the roof acreage sitting in the sun should be put to work. Even if you do not have an EV or PHEV, a leased rooftop PV system pays for itself. End of sermon.