By Anton Wahlman
April 1, 2018 - Most people know the cost of driving a car that runs on regular gasoline. You take the price of the fuel per gallon, and divide it by the Miles Per Gallon (MPG) number that your car yields. The resulting number is the “cost per mile” in variable fuel cost terms.
So far, in the switch to electric cars, the cost of electricity per mile driven, has not been the subject of much discussion. It’s just somehow assumed that an electric car costs less to drive than a gasoline car. There are at least two reasons for this:
Many early adopters don’t care about the cost of the fuel (electricity) because all they want is to try the new technology. Trying new technology is, after all, cool in and of itself -- especially tech for sports cars.
Many early adopters pay literally nothing for the electricity. Why? Because they charge their cars almost exclusively at one location: Their office, during the day, where the electricity is provided free-of-charge. You just can’t beat 100% free.
However, most of the world does not look like the parking lot at Alphabet’s (NASDAQ:GOOG) (NASDAQ:GOOGL) headquarters, or many other larger companies in Silicon Valley. Most people in the world don’t live in houses with safe garage space, and most people don’t work at large Silicon Valley companies, where EVs make up a disproportionate share of the employee car park.
For EVs to scale, they will have to be sold to people who live in apartments and park on the street. These are the same people who fuel their cars at the gasoline station today. Let’s see how that has worked for generations.
Someone who is concerned with saving fuel, while simultaneously driving a practical car that fits five adults and a healthy amount of luggage, has several great choices in 2018. These would be the most obvious ones, available in the $22,000 to $25,000 range, completely unsubsidized:
Toyota Prius -- 58 MPG city, 53 MPG highway
Hyundai Ioniq -- 57 MPG city, 59 MPG highway
Honda Insight -- 55 MPG city, highway MPG TBA Summer 2018
In other words, there are attractive and spacious hatchbacks yielding at least 55 MPG for under $25,000, without taxpayer funding needed. Just to be conservative and give the opposite side of the argument the benefit of the doubt, I’ll refer to these as 50 MPG cars, even though they perform a little better. Rounding down is sufficient for this exercise, as you will see below.
In any of these cars, you can stop at almost every other street corner in America and add around 10 gallons of fuel for an additional 500+ miles of range. The whole process is done in 3-4 minutes, all-in. Just wait until the fuel light blinks yellow, and pull over anytime within the next 50-100 miles when it’s convenient. It doesn’t require any thinking or planning.
For the regular person, who has no intention of fueling at home with some sort of a cord dangling from the bedroom window to the car on the street, and who doesn’t have an employer where he/she can fuel for free during the day, how does this price and experience compare to Tesla’s (NASDAQ:TSLA) superchargers?
First of all, you have to buy the car. The current version of the Tesla Model 3 starts at $50,000 and Tesla says it’s rated at 310 miles of range. Nevermind that Car & Driver Magazine just published its Tesla Model 3 review and got a whole lot less: 2018 Tesla Model 3 Test | Review | Car and Driver
“...it’s difficult to gauge exactly how disappointing the Model 3’s result is in our real-world 75-mph highway fuel-economy test. Our calculated range of 200 miles is far below the EPA’s overall estimates of 310 miles in combined driving and 293 miles in highway driving, but it was certainly affected by the 28-degree-Fahrenheit ambient temperature.”
Basically, if it’s a little cold outside, lop a third off the range. If it’s even colder, presumably worse.
Now you’ve paid twice as much for the car and you’ve got at best approximately half the range. Refueling time? Unlike the Toyota, Hyundai or Honda, you’re not refueling that Tesla Model 3 in less than five minutes. You can fill a majority percentage of the Model 3 in less than half an hour if you’re lucky, but if you’re filling it from nearly zero to 100%, that will take even longer.
So the range is half at best, you’ve paid twice as much for the car, and it takes at least ten or twenty times as long to fuel the car to drive half the range -- but what does the fuel actually cost? This is the biggest question for many people.
To find out, you can go to Tesla’s Supercharger price list, which is available online: Supercharging
The prices vary from state to state. I picked 16 states as examples here, including many of the big ones cornering the country -- Washington, Oregon, California, Florida, Virginia, Maryland, Massachusetts and New York. Those would be the ones where most EV buyers are anyway.
As you can see in the table above, the average is close to the $0.24 per kWh mark. So how far does that $0.24 take you?
The Tesla Model 3 is rated at 26 kWh per 100 miles according to the U.S. Department of Energy: 2018 Tesla Model 3 Long Range
In other words, almost four miles per kWh. It’s close enough that we can round it up to four miles, just to give Tesla some margin in its favor. That squares with the general rule of thumb in the EV world: A smaller energy-efficient EV will yield around 4 miles per kWh, whereas a larger EV will yield around 3 miles per kWh.
That means that at $0.24 per kWh, the Tesla Model 3 costs $0.06 per mile to drive.
How does that compare to the gasoline cars? At 50 MPG and today’s nationwide average gasoline price of $2.65, that’s $0.05 per mile. In other words, it’s cheaper to drive the gasoline car than the Tesla Model 3.
The break-even point is easy to identify, too: At $0.06 per mile -- Tesla Model 3 -- the breakeven point for the 50 MPG car is $3.00 per gallon. Clearly, not too far from today’s $2.65 nationwide average, but as you can see, it’s relatively close.
Now of course, the lifecycle total cost of ownership doesn’t end there. Aside from the consumer having to finance the $50,000 car instead of the $25,000 Prius/Ioniq/Insight, there is also the uncertain matter of the battery cost.
It is understood that you should not have to pay for a new EV battery within the first ten years, if for no other reason because of warranty and general expectations of reliability. However, at some point the day to buy a new battery will come. Perhaps not at the 10 year mark, but otherwise at 15, 20 or 25 years.
In a gasoline car, you are not worrying about the expense of switching out the gasoline tank after a decade or two or three. If you had to do it, the cost would be tiny anyway.
However, in a Tesla Model 3 you are talking about a battery close to 80 kWh. We know Tesla said that its cost (by some narrow definition) was falling below $190 per kWh. However, counting all costs and adding a profit margin plus labor, we can safely say that the price (not cost) would be at least $250 per kWh all-in.
So at $250 per kWh, we are talking $20,000 as the total price for the 80 kWh battery, perhaps including installation and disposal, if necessary.
In contrast, the hybrid car will have a battery that’s only a hair over 1 kWh. While that doesn’t translate to $250 in total because fixed packaging cost, labor etc, it also doesn’t stretch much above $2,500 at worst, and that’s at a 10:1 scale penalty.
In other words, as an EV owner you will have to amortize most of that $20,000 battery over some period of time, minus the trade-in value of your own battery. Let’s call that $10,000 for every 10 years, on average, or $1,000 per year in amortization.
The battery amortization completely kills the economic case for EVs, right there. Why? For the average U.S. person who drives 12,000 miles per year, that’s 240 gallons per year at 50 MPG. Multiply by today’s $2.65 per gallon average, and that means $636 per year, or $53 per month.
We can debate the ballpark of $1,000 a year for the Model 3 battery amortization, but it’s fair to conclude that even if the electricity were free, the battery amortization is still approximately equal to the annual gasoline bill for the Prius / Ioniq / Insight driver, and possibly 50% higher.
Let’s summarize the situation, in six easy steps:
1. The Tesla Model 3 costs twice as much to buy as the hybrid hatchbacks from Toyota, Hyundai and Honda.
2. The Tesla Model 3 has at best half as much range as those cars, and is far more impacted by temperatures.
3. The Tesla Model 3 takes at least 10x-20x as long to recharge/refuel -- only to get half the range.
4. You have to assign some number to annual battery depreciation, even if the battery will be fine for at least a decade. That amortization number could be in the ballpark of $1,000 per year.
5. Considering that these hybrids will cost you only $636 per year in gasoline expense for the average 12,000 mile per year driver, the argument stops right there.
6. Even if you somehow dream away the battery depreciation, the Tesla Model 3 costs $0.06 per mile from the Tesla Supercharger, whereas the gasoline hybrids cost $0.05 per mile at the current nationwide gasoline price average. In other words, gasoline is cheaper even if you assume away all the other EV costs.
This math is simply devastating.
One Objection: Fast car vs Eco-car
I can already anticipate what some critics will say: The Tesla Model 3 is a performance car that should not be compared with the likes of Toyota Prius, Hyundai Ioniq and Honda Insight. There is some truth to this, but I will explain why it does not matter for most people, even though it may matter for some.
The Tesla Model 3 does 0-60 in approximately five seconds. The hybrids in this comparison will take approximately twice as long. This is undeniable.
However, for most Americans this does not matter. For the car to be able to make you car-sick does not shave much if anything from the time of your daily commute and most errands you are going to run. You are probably going down the freeway at the same 65 MPH, 75 MPH or 85 MPH on cruise control regardless.
One could just as well start to compare the luggage opening (hatchback vs sedan) and rear seat space/comfort, and various features. Or for that matter that Hyundai, Honda -- and soon also Toyota -- come with SiriusXM, Android (GOOG) (GOOGL) Auto and Apple (NASDAQ:AAPL) CarPlay, whereas the Tesla Model 3 lives in its own isolated Luddite tech world.
Bottom line: The legislation is coming to a head
We are in the middle of governments at various levels subsidizing, incentivizing and in some cases mandating electric cars. Yet, they are simply more expensive. It’s like the government forcing everyone to buy a $5 million home, or be homeless. This will not end well, including for the economics -- and therefore the stock prices -- of the automakers. Something has to give, or the industry will collapse.
Next time you hear someone say that EVs are cheaper to run, show them these numbers. It just ain’t so.
Disclosure: The author is short TSLA.
The author wrote this article, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author is no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: At the time of submitting this article for publication, the author was short TSLA, and long GM and GOOGL. However, positions can change at any time. The author regularly attends press conferences, new vehicle launches and equivalent, hosted by most major automakers.
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
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