Hidden COSTS of Electric Vehicles You Didn’t Know About

The new tax credits for consumers built into the Inflation Reduction Act will do little to speed up the transition to electric vehicles where affordability remains the critical issue. The ability of consumers of varying economic realities to buy electric vehicles is pivotal to their success, according to panelists at the annual Automotive Insights Symposium in Detroit held by the Federal Reserve Bank of Chicago. “If you can afford to buy an electric vehicle, you can’t use the tax credit because of the income caps, which revolved around the affordability of electric vehicles. The U.S. Treasury Department won’t have the final rules governing the tax credits ready until March 31. But the credits are limited by family income and the price of the vehicle under the new law.

If you are considering the purchase of an electric vehicle, there are five hidden cost you need to know. Some people believe that electric cars will pay you back over time with lower ownership costs and zero trips to the gas station. EVs certainly can make financial sense for some drivers, but there are a lot of hidden costs that industry marketing glosses over.

The government is a pushing for every driver to switch to electric, while almost every automaker has invested billions of dollars into expanding their electric vehicle lineups with hopes that you will make the switch. Do the math and see what works best for you and your budget, and don’t be pressured into what may or may not work for you. A close inspection of the cost of electric cars versus a gas car. The tax breaks, the maintenance, the fuel costs may surprise you as to which is actually the better buy. Here are the hidden costs of EVs.

Electric vehicles Still Cost Much More To Buy

The EV-ICE price gap gets narrower every year, and Bloomberg predicts that EVs will be cheaper to buy than comparable gas cars by 2025 — but for now, electric cars still have much higher MSRPs.

Most EVs still have higher-than-average starting prices, which is discouraging plenty of cost-conscious buyers. However, there are some lower-cost EVs like the Nissan Leaf, KIA Soul, Hyundai Kona and Chevy Bolt EV as a few examples.

At the same time, the average electric car price was $65,041 the average transaction price according to Kelley blue book. The average price paid for a new EV increased by $500 since the month prior. That’s considerably higher than the average four-door sedan, which runs about $35,000, according to Kelley Blue Book. Tax credits and gas savings can save you money. However, it’s going to take a few years to make up a potential $20,000 difference.

Higher insurance rates

MoneyGeek’s analysis of car insurance premiums for 17 current electric car models showed that EVs cost 15% more to insure than internal combustion engine (ICE) vehicles. In comparing corresponding EV and gas car types, this research showed a 6% to 40% increase in cost. Furthermore, 15 of 17 EV model insurance rates were above a comparative national average.

EVs have higher insurance rates than gas powered cars comes down to technology. Electric vehicles contain more high-tech parts, sensors, chips, expensive computers, and performance elements. EVs also cost more upfront than their gas version. Crashing or otherwise damaging the surface or insides of electric rides is simply going to be more expensive to fix, making them more expensive to insure per MoneyGeek.

Higher registration fees

State gas taxes are assessed to help pay for road repairs and infrastructure issues due to constant road use. Fully electric vehicles don’t require fossil fuels to operate, however, allowing EV owners to skip out on these critical taxes.

As a result, some states have tacked on supplemental registration fees for electric vehicles to compensate for the lost revenue. According to the National Council of State Legislatures, 31 states charge a special registration fee for plug-in EVs, and 18 states also charge extra for plug-in hybrid vehicles. Registration fees range from as low as $50 annually in Colorado, South Dakota, and Hawaii, to $225 more for EVs in Washington. The purpose of this tax is not only to keep roads rolling but also to serve as an investment in future EV infrastructure. Washington uses $75 of its fee assessments to building out its charging network; Alabama uses $50 out of its $200 annual fee.

These extra expenses are projected to grow over time. Several states have set registration fees to increase along with inflation-related metrics to offset the diminishing purchasing power of gas taxes plus a by-the-mile fee.

Most Drivers Will Change Cars Before an EV Pays Off

A U.S. Department of Energy report found that, when factoring in the long-term ownership expenses, a small electric SUV costs $0.45 per mile compared to $0.47 per mile for a comparable gas car. That’s a difference of just over $0.02 per mile. The report concludes that it would take 15 years for the average EV to make up for its higher purchase price.

Electricity Is Cheaper Than Gas, But It’s Hardly Free

The most compelling incentive to switch, of course, is fuel. Gas is much cheaper now than it was this summer, but it’s still more expensive than electricity. Still, it’s a mistake to consider switching without factoring in the considerable cost of charging.

As the price of gasoline rises, so does the cost of electricity. The average cost of gassing up a car is $1,120 a year. The annual cost to operate an electric vehicle is about $485 per year, although having a home charger can lower that figure. The average cost of a home charger plus installation is $2,000 with a national average range of $1,000 to $2,500; and should be installed by a certified electrician.

KBB estimates the average driver spends $59 per month charging an EV at home but that doesn’t factor in stops at much more expensive fast chargers on the road.

Charging time costs

Super-fast EV battery charging is not too far down the road, it still takes an average of 15–30 minutes for EVs to charge at their quickest clip. EV owners charging via a Level 1 port, that is you standard household plug, might have to wait from six to 12 hours to get batteries up to desired power levels. Install a Level 2 home charger to earn a 10% more efficient charge than a Level 1 model, which tacks on about four times more miles per charging hour.

Drivers who plan to utilize EVs for long commutes might lose valuable hours waiting for cars to charge. At the least, owning an electric vehicle requires time to plan how and when cars are going to be in use. Time is money that could be spent doing something more lucrative and productive. This consideration shouldn’t be ignored when considering a large investment in an electric vehicle.

The Myth of a Maintenance-Free Vehicle

When you switch to electric, you leave behind the incredibly complex internal combustion engine and the many components and parts that make it run. Which means no tune-ups, no oil changes, no coolant flushes, but that truth has fostered a popular myth that says electric cars don’t require any professional upkeep.

They do require service, if there are moving parts, there is maintenance. The annual cost of maintaining an electric vehicle comes in at around $900 a year. That’s only $300 less than the $1,200 a year it costs to keep gas or diesel engines running smoothly. According to Forbes, EV drivers pay about $0.06 per mile in maintenance costs compared to $0.10 for gas vehicle.

Expensive battery replacement

Per Auto Week, every EV purchased in this country features a battery warranty “that extends to at least eight years or 100,000 miles.” Driving 10,000 to 12,000 miles per year means that new EV owners won’t have to worry about battery degradation for eight to 10 years. When they do require replacement, electric car drivers are in for a big bill that is between $5,000 and $10,000, according to Consumer Reports.

They explain that electric batteries degrade and drop capacity over time, just like cell phone or laptop batteries. EVs lose about 2% of their range per year. Five to 10 years in, this becomes noticeable. While mechanics can service EV batteries, the entire battery pack will probably need to be replaced.

As the federal government continues to incentivize domestic electric vehicles, the hidden EV costs should not necessarily inhibit EV buyers, but rather should inform as to the true expenses and long-term investment.

There is so much more to discuss on this, put your comments below and let’s start the conversation.

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