Teslanomics: The Economics of owning a Tesla Motors Automobile

Can you afford to buy a Tesla?

Can you afford NOT to buy a Tesla?

Explore this page of EV-Economics that we like to call “Teslanomics.”

Teslanomics: The Economics of owning an EV (electric vehicle)

Teslanomics

5-Year Cost of Ownership

Tesla cars at face value, are by no means cheap. The Tesla Roadster, Tesla Motors’ first car is an expensive and highly desirable toy for those who can afford it. It has a base price of $109,000 US before incentives. But if you’re in the market for a sports car like a Porsche 911, then a Tesla Roadster is a better choice, because it can save you money in fuel due to the fact that the cost per mile using electricity is 8-14 times cheaper than gasoline! This does however, depend on where you live. Electricity rates vary throughout the US. For example, electricity costs are 4 times higher in Hawaii, than they are in the state of Washington. If you drive 15,000 miles per year, you could save as much as $13,000 in gasoline over 5 years if your electrical rates are reasonable. But if you can afford a Porsche 911, what you save in gasoline may be of no concern to you. However, the time you DON’T spend at the pump will definitely be a nice perk. How you help the environment may be, however, a more worthy cause. Unfortunately, this is a beautiful car that few can afford. But even if you could, you won’t find Tesla Motors selling any more. They are all sold out.

Don’t give up yet!

But don’t despair; Tesla has a new roomy more affordable gorgeous sedan coming out in mid-2012 that’s priced just for you! It is the Tesla Model S. It costs roughly $57,000, but after Federal Incentives, the cost is just below $50,000 (your state or city may offer incentives that reduce it even further). If that amount seems to rich for your budget, I’ll show you why it may not be and why the next lower-priced gasoline-fueled car you plan to buy, is likely to cost you around the same or even more! As long as you can come up with the cash or the financing for it, this car, The Tesla Model S, can actually be cheaper to own than many other less expensive vehicles.

The Tesla Model S is a luxury car that can be compared to a BMW 5 Series. But buying a Tesla Model S instead of a BMW 5 Series will save you a significant amount of money during your ownership, that is, depending on how long you hang on to it. Even if you were to buy a more traditional 6 cylinder car like the Chevrolet Impala or Toyota Camry, you would still save money, thereby affording you a significantly nicer luxurious car at a very discounted price. Read on...

Comparing Model S to 3 Different Cars

Let’s look at 3 very different cars: The Chevrolet Impala, a standard American car, The BMW 528i, a popular German car, and finally the Toyota Camry, a Japanese car which seems to be one of most popular in the USA. The Impala gets a combined (FWY/city) 22 mpg, while the Camry will net a combined 25 mpg, and the BMW 528i yields 27 mpg.

Let’s do the math. Gas today, costs roughly $4.00 per gallon. According to the Federal Highway Administration, the average yearly miles driven for age groups 20-54 is roughly 15,000 miles. If you are a male, its closer to 18,000 For females, its about 12,000. (P.S... the more you drive, the more you save). So let’s use the 15,000 mile per year average for now. In the table below you can see the cost of fuel alone on each of these vehicles. Please note: these are based on today’s gasoline price of roughly $4.00 per gallon.

In the United States, based on the average cost of electricity, to charge up the Tesla for a range of 160 miles, the cost would be $3.00. That’s 1.8 cents per mile. Thus, 15,000 miles x $.018 = $270 per year! Yes, you read this right; it’s $270; no, this is not a misprint.

At $4.00 per gallon, if your gasoline-based car is averaging 25mpg, then you are paying 16 cents per mile in fuel costs. That’s 8 times higher! If your car gets 15mpg, then your fuel costs are 26 cents per miles; 14 times higher!

But for how long would you keep a car? That varies from driver to driver, however a 2009 Wall Street Journal article cited a J.D. Power survey that revealed the average car trade-in occurred after 6.2 years of ownership. Collision repairers have identified though that the average age of vehicles on the road today is nearly 10 years. A new survey even confirmed that consumers with vehicles 10-years-old or more will keep their cars another five years on average.

So lets base our calculations on vehicle ownership for a 5-year as well as a 10-year period. The table below reveals that fuel costs after 5 years and 10 years are 8.3 to 10.5 times higher for these 3 cars vs electrical recharging costs to travel the same 15,000 miles in a Tesla Model S. But this assumes that the price of gasoline stays the same for the next 5 and 10 years. That is unrealistic.

Gasoline will go up in price...

We can safely assume that gasoline prices will go up in next 5 and 10 years. Analysts forecast oil prices to double in less than 10 years, that is, by 2020. That would make gas go up another $4.00 and thus cost $8.00 per gallon within less than 10 years. So lets estimate gasoline to go up half of that, $2.00 within the first 5 years. Gas would then be $6.00 per gallon. The average price of gas during that 5 year period would be the average of the current price, $4.00, and the final price at the end of 5 years of $6.00. Thus the average price over the 5 year period would be $5.00 per gallon. The average price of gas during a 10 year period would be the price between the current price of $4.00 and the future price of $8.00. Thus the anticipated price would be $6.00/gallon on the average over a 10 year period.

Although analysts anticipate electrical costs to remain the same due to expanding use of renewable energy sources, lets assume the same percentage price increases for electricity.

Cost of vehicle ownership can be measured by adding the cost of fuel+vehicle depreciation (loss of car value)+insurance+repairs+maintenance+sales tax+registration fees+financing. However, lets examine the bulk of these costs during time of ownership and use. To do so, we need to calculate the following:

Predicting Model S Depreciation

Tesla Model S is a new car, so how do we anticipate what the resale value might be in 5 years and in 10 years, that is, how much will the car depreciate or how much value will the car lose? One hasn’t been sold 5 or 10 years ago since it’s new, so how can we speculate what we might be able to sell it for 5 or 10 years after we purchase it?

To find that answer we look at Toyota, since they manufactured both the RAV4-EV (an electric vehicle) as well as the Prius (a hybrid) long enough ago to give us an idea of what the resale value could be on alternative fuel cars. In looking at the Prius, we find that the depreciation rate (the cars value after years) is the same as similar gasoline-only powered cars. However it comparing it with the Toyota RAV4 EV, the depreciation rate is slower. The RAV4-EV is still cheaper to fuel than the Prius, so lets base the depreciation on the average of the two. The RAV4 EV sold originally for $42000 minus a $9000 California grant (which decreased to $5000 in 2003). In 2006 a RAV4 EV sold on eBay for $67,300! That was because in 2006 there were no other EVs on the available or soon to be available Today, one in good shape can fetch $$13,000, so that’s a 60% loss of value, but that’s after 10 years! According to Edmunds TCO (True Cost of Ownership), they anticipate a loss of 58% on the Nissan Leaf which is also an EV, so let’s use the same 5-year depreciation on the Model S.
We see that within 5 years, the operating costs of the BMW exceeds the Tesla Model S by 40%, over $16,700. The Impala and Camry, however, end up with about the same operating cost. However, all of these savings have the potential of being even higher since the Tesla requires significantly less maintenance than a gasoline-powered car, but that may be a wash, since the Tesla will have a higher insurance rate since it is a more expensive car. Nevertheless in the case of these 2 cars, for close to the same costs within a 5-year span, you end up with a much better, higher caliber, environmentally beneficial car for the same investment in the long run.

As you can see, the savings really pick up if you own the car for longer. Over a 10 year period, your savings can range anywhere from almost $10,000 to 34,000 on these 3 cars. We’ve assumed a 70% amount of depreciation for 10 years on the Tesla Model S. 50% depreciation for 5 years and 70% for 10 years may be excessive considering that ultimately as gas goes up in price, so will the desire for cars that don’t use gasoline. However, while approaching 10 years with an EV you’re also close to needing replacement batteries. Recently on a Teslamotors.com forum, it was estimated that the cost of the 160 mile battery pack today, might be as much as $20,000. However, with the steady 8% decline in costs of lithium-ion technology, and with the advancement in battery technology, by the end of that 10 year period, your real replacement costs should be closer to $10,000 or less. By that time, however, you may be paying an estimated $8.00/gallon for gasoline, and even a Toyota Camry will use $4800/year in fuel. So you’d recover that cost in a short 2 years.

Within 5 or 10 years, your gasoline-powered car may lose even more of its resale value as alternative fuel cars increase production and gain popularity. So gasoline powered cars may sell for even less in years to come than what current historical sales records forecast today.

Please feel free to use this as a guideline only. Not every possible scenario has been factored into the true cost of ownership such as Insurance because until the car is first sold, we won’t know how insurance costs differ from for the Tesla Model S, as compared to other vehicles. Also, future gasoline prices and depreciation on the Tesla Model S is purely speculative and the true cost of gasoline at that time as well as the residual value of the vehicle won’t be know until the time comes.

Select a Car Make from this Pull down list:

Try the U.S. Department of Energy’s Vehicle Cost Calculator

5-YEAR Total-Cost-of-Ownership* (T.C.O.) Range for all Cars per Manufacturer

*(based on cost of fuel + depreciation + maintenance + repairs)

Lowest T.C.O. for car manufacturer is for their most economical car

= T.C.O.* for Electric Vehicles

= T.C.O. for Hybrid Vehicles

= Low to High range of T.C.O. for all cars per manufacturer

Which cars offer the best value?

TESLA MODEL S vs. OTHER MANUFACTURER CARS

(Tesla Model S is a much better value than all other gasoline-fueled cars)

Would you rather drive a $19,000 to $32,00 car or a $57,000 Tesla Model S

They both cost* the same

(*Ownership cost does not include insurance cost differences)

How much value do hybrid vehicles really offer?

Scroll down to read the following sections:

Teslanomics: The Economics of owning an EV

5-Years Cost of Ownership

Tesla Model S Average Estimated Cost/Mile in your State

Which cars offer the best value?

How much do hybrid vehicles really save?

What happens after the $7,500 Federal credit is terminated?

Analysis coming soon.

What happens after the $7,500 Federal Credit Disappears?

Analysis coming soon.

Thank you for your support

Owning an electric vehicle is cheaper than owning a gasoline-powered vehicle. The reasons are simple. Here’s why:

•Gasoline costs 2.3 to 14.8 times more than electricity to travel the same distance*
•Maintenance on an Electric vehicle is minimal

In 2009, Elon Musk, the CEO of Tesla Motors wrote, “The ownership cost of Model S, if you were to lease and then account for the much lower cost of electricity versus gasoline at a likely future cost of $4 per gallon, is similar to a gasoline car with a sticker price of about $35,000.” We’re already paying about $4 per gallon today (it varies over time). Gasoline prices are likely to go up, and with that increase in price at the pump, so does the affordability of a Tesla automobile. If the average cost of gasoline is $5 per gallon within the next 5 years, then owning a Tesla Model S, will be comparable to owning a $30,000 gasoline car. But if you’re the type of person that hangs on to your car for 7 or even 10 years, you’ll be saving much more.

*Gasoline cost range at 2.3 to 14.8 times more than electricity was calculated based on the cost per mile for a 15 mpg and a 35 mpg car using a price per gallon of gasoline of $3.75, compared to the cost per mile in the State that offers the cheapest residential electrical cost, Idaho and the state with the second to highest cost, Alaska. The price used for Idaho was 1.69 cents per mile, and 4.57 cents per mile for Alaska. The electric rates in Hawaii were not applied in that range since they are so far out of the norm with a cost of more than double what Alaska’s average electrical costs are.

We calculate the estimated cost of ownership over a 5 year period for the purchase of new 2011 or 2012 vehicle and new 2012 Tesla Model S. The purpose is to compare your estimated cost of ownership for 5 years to another vehicle you may potentially buy, to that of a Tesla Model S. You may select the list of vehicles for any specific manufacturers by clicking on the buttons below or from the pull-down list above. The the cost of ownership is calculated using the following equation:

Today, the least expensive Porsche, sells for $48,000 while a basic Toyota Camry sells for $21,000. If I told you that I’d sell you a brand new 2012 Porsche for the same price as a brand new Toyota Camry, wouldn’t you grab that opportunity in an instant?

Most people would. But what if I told you thereafter that the Porsche uses very expensive fuel and that the maintenance costs are 5 times what maintenance costs on a Toyota Camry. If you discovered that instead of spending $3,500 per year on fuel that you would have to spend $15,000, and that your maintenance costs would be $5000 per year instead of $600. At that point, you’d definitely lose interest instantly. After all, even though the car would be discounted by nearly $30,000, you would in a 5-year period end up spending $75,000 on fuel alone and $25,000 on maintenance; that’s $100,000 total!

This is of course a intentional exaggeration but it has a purpose. Its purpose is to reveal something important that most people never stop to consider. What a car costs does not matter, nor do the payments you will be making if you finance it. If someone did offer you a great deal on a car, would you even stop to consider how much it would cost you to operate it over the period that you plan to use it? I think the answer for most of us is, “probably not.”

it’s what a car costs to operate that is really the only significant thing we should be looking at. After all, most of us buy a car to use it, and then when we are done, we sell it or get rid of it, and then purchase another car. At the end of its period of use, you’re left without the car, and with only the expense you incurred in operating, that is maintaining, repairing, fueling, and the money you lost when you sold it compared to what you paid when you first bought it. If you purchase a car and only consider its sticker price or the monthly payments to determine its affordability, then you haven’t really stopped to figure out whether or not you can actually afford that car.

What if ever car had, in addition to its window sticker revealing price and options and the EPA sticker with estimated city and highway mileage, also revealed what it is likely to cost if you use it for 5 years, or 10 years? Wouldn’t that change that way we shop for cars? It really wouldn’t be so unusual. After all, every time I buy a large appliance like a refrigerator or dishwasher, it comes with a tag that says how much it is likely to cost me per year. Unfortunately that’s unlikely to happen.

What if someone offered you a very expensive car that costs almost $60,000 but told you that to fuel it, it would only cost $300 per year instead of $3500 per year. What if you also found out that at most, you’d only have to change the brakes on it every 3 to 4 years thus reducing some of you maintenance costs? You still would probably think, wait...it’s still a $60,000 car, which I know I can’t afford! But, what if you found out that despite the higher sticker price on the car, that the cost to operate it would be the same or less than the $20,000 to $30,000 car you were planning to buy? If you were told that after using the car for 5 years and maintaining it, paying for future repairs, fueling it, and thereafter selling it, that you would end up spending less money or the same money as that other cheaper car you were considering? Wouldn’t that interest you?

Which is the better deal? The car that costs $60,000 that you get to drive for 5 years after which you will have spent $32,000, or a $26,000 more budget car for which you also would still spend the same $32,000! Either way, at the end of those 5 years you would end up having spent the same amount of money, but had a completely different experience.

If we examine this, it seems that the cost to use the $60,000 car was half the price of the car, while the cost to operate the $26,000 car was almost 25% more than the cost of the car itself! So if the operating cost of a car, divided by the price of a car gives a lower number, the car is clearly a better deal.

We decided to examine this for all the cars we’ve looked in Teslanomics and we discovered something very interesting. If you look at the graph above, you’ll notice that all the gasoline cars are clustered in a line that almost goes at a 45 degree angle. It seems that gasoline-fueled cars have an operating cost (depreciation, fuel, maintenance, and repairs) about equal to or 50% higher than the price of the car itself!

So we divided these two figures (operating cost/car price) and came up with an index for each car. The higher the number, the more it costs to operate, while the lower the number, the cheaper it is to operate compared to its cost. In the example above, we really were comparing a $57,400 Tesla Model S, to a $25,945 Volkwagen GTI Hatchback. If you were given the choice of driving a luxury car like the Tesla Model S or a VW GTI for the same exact costs, clearly the Tesla Model S is a better value, and that is clear in the fact that the index we obtained in dividing the car’s operating cost by its price was .58, while it was 1.22 for the VW GTI.

We call this index the CVI or the Car Value Index. When you view individual car manufacturers vs Tesla Model S in the pages here in TeslaRumors Teslanomics section, you will see in the list for each car in the right-most column which car has the lowest (best) CVI. Both the Nissan Leaf and the Tesla Model S have excellent CVI’s, and he $7500 Federal Tax Credit helps that. But since that will ultimately one day go away, we calculated the CVI without the credit and found that the Tesla Model S’ CVI still retains an excellent CVI in going from .58 to .68 while the Nissan Leaf becomes less appealing with a CVI of about 1.

Adding the estimated 5 year cost of fuel, cost of maintenance, cost of repairs, and the loss of value (depreciation) of the vehicle gives us our estimated operating costs for a vehicle after a 5 year period. Our sampling of numbers is obtained using Edmund’s TCO (True Cost of Ownership) Calculator. At this time, we are unable to account for insurance cost differences because we don’t as of yet have insurance data for the Tesla Model S since manufacturing for the Tesla S doesn’t being until mid-2012. We also are not accounting for differences in taxes and fees since those vary too much from state to state and we are estimating costs on a sample of data for only 1 zip code in Los Angeles, California. Also, we are not accounting for potential finance charges. You may add these on your own to adjust your own comparisons.

If you were to sell your newly purchased vehicle after 5 years, you’d get about the price you paid, minus that loss of value (depreciation) which occurred after that 5 year period. For the purpose of this comparison, we used 58% depreciation (initially 50%-these pages are being updated) for the Tesla Model S suggesting that the Model S would lose more than half of its value after 5 years. We think, however, that the loss of value for the Tesla Model S will be less because these cars, with their low maintenance and their cheap cost for fueling, and better styling, range and cargo space than competitor EVs will be very desirable in the used car market (as observed today with the used market for 2003 Toyota RAV4 EVs) while the resale value of gasoline-based vehicles will continue to diminish over time as they become less desirable.

Please note, this calculation does not take into account differences in insurance costs and real maintenance and repair costs since we don’t know what those are as of yet for the Tesla Model S. It also does not take into account the varying cost of electricity in different parts of the United States. You may, however, see October 2011 actual residential electric costs here and substitute our values with values based for your state. It does not take into account taxes and registration fees nor cost for financing; so it does not reflect all potential costs. Also, these estimates are based on pricing in Los Angeles. Repair, maintenance, and fuel costs in different parts of the country will vary

somewhat. This will, however, give you a great perspective on difference in costs of ownership on a high percentage of overall potential costs.

CLICK ON THE MAP TO SEE ELECTRICAL CHARGING COST FOR THE MODEL S IN YOUR STATE AS WEL.L AS ESTIMATED COST PER MILE.

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