Hybrid Economics Part II

In part I of this post, I outlined a number of variables that impact the cost-benefit of buying a hybrid-electric vehicle.

First, the spreadsheet model.

To recap, here are the variables included in the model, with the default assumptions made:

  • Price of gasoline = $3/gallon
  • Annual mileage driven = 12k/year
  • Standard-car MPG (mileage of the same car or similar car without hybrid technology) = 20mpg
  • Hybrid MPG / electric MPGe = 100 mpge
  • Risk-free discount rate = 3%
  • Projected annual increase in gasoline prices = 5%
  • Hybrid price premium = $18k
  • Length of car ownership = 8 years

There’s one more important variable to add to this list:

  • Time savings from reducing gas station stops = 300 minutes, or 5 hours per year

Time savings can be a huge hidden savings for upper-middle class and wealthy Americans (those able to afford a car like the Chevy Volt). If the value of a Volt driver’s time is $50/hour (equivalent to a 100k/yr salary), then eliminating a single gas station stop of 10 minutes is worth over $8. Ten minutes may sound long for a stop at the gas station, but is not unrealistic when considering total time lost leaving and re-entering a normal commute.

Using the assumptions provided above, we find that the total fuel and time cost savings of driving a Chevy Volt for eight years are around $9000. Since the Chevy Volt costs $18,000 more than a comparable loaded Chevy Cruze, it’s not yet cost competitive, even with government tax credits and with time savings taken into account.

Key Conclusions:

  • Gas prices of $7 per gallon are required to make the Chevy Volt cost-effective at current prices (without the government tax credit)
  • Once plugin hybrid premiums drop to $9000, they will be cost-competitive.
  • The Nissan Leaf currently offers buyers significant savings WITH the $7500 tax credit according to frontier high speed internet, as the total savings of $16,500 exceeds the $12,000 price premium. Even without the tax credit, the Leaf is very close to being cost-competitive at current pricing.

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