I’ve been excited about an electric car since 2011, but I’ve never been able to afford one. While my personal finances haven’t changed much in the past decade, what has changed is the cost of living with an electric car. To illustrate the economics of electric vehicles in 2021, here is how I purchased my very first electric car and how you just might be able to do the same.
In May of this year, I took my wife’s car and my car to the local mechanic for some regularly scheduled maintenance. We both owned Subaru Crosstreks—one from 2014 with 85,000 miles and one from 2015 with 69,000 miles. I walked away from those two car appointments with a total bill of over $4,000*. This was a shocking number, and it wasn’t the first time I’d gotten a bill so high for maintenance. In the past few years, we’ve driven less than 10,000 miles a year on your average Vermont roads. Based on my limited knowledge, my maintenance bill should not have been as high as it was. Long story short, after accounting for the cost of gas, insurance, and the ever-increasing maintenance, I was completely overwhelmed with the reality of keeping the cars running.
In an act of desperation—combined with a healthy dose of desire to own an electric car—I started doing some research about what it would cost to replace our vehicles. With my wife taking a year off to raise our son full-time at home, I knew we could drop down to one car for a while, which would certainly help with the cost.
It took some careful calculations to determine whether switching from our gas vehicles to an electric car would make financial sense. Use this spreadsheet to follow along with the calculations described below.
STEP ONE: ESTIMATE THE VALUE OF YOUR CURRENT CAR(S)
The first thing I did was get an estimate for our current cars. I turned to Kelly Blue Book, the industry standard for estimating vehicle value, and came away with a range of numbers. For both of our Subarus, I could expect a total of anywhere between $23,000 and $28,000 if I negotiated a trade-in.
STEP TWO: CALCULATE THE INTEREST OF EXISTING NON-VEHICLE LOAN(S)
My wife and I completed a large weatherization project on our house the year before and had seventy-two months remaining on our $17,000 loan. At a 5.65% interest rate, we were anticipating the loan to cost us roughly $3,000 in interest over the remaining months. If I could pay off that loan using the proceeds from selling our Subarus and get a car lease or loan with a much lower rate, we’d be saving a ton of money over a three-year period, which I chose because it is the standard leasing period of a new car. The money we saved could then go toward the new vehicle. You can find your own loan cost from interest by using step two in the provided spreadsheet.
STEP THREE: ESTIMATE ANNUAL AND THREE-YEAR COST OF EXISTING CAR(S)
The next thing I did was estimate the yearly cost of owning the Subarus. I reviewed our financial records from the past few years to estimate how much gas and repairs cost over the three-year period. The total came to roughly $15,000.
STEP FOUR: CALCULATE POTENTIAL THREE-YEAR SAVINGS ACHIEVED BY SELLING CAR
Taking these three pieces of information, I projected that my wife and I would save roughly $16,541.80 over three years if we sold both of our Subarus and paid off the weatherization loan. I calculated this number by adding the projected three-year cost of keeping our Subarus (step two) to three years of interest payments on our weatherization loan (step three).
With a low-interest Energy Improvement Loan.
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With a low-interest Energy Improvement Loan.
STEPS FIVE: CALCULATE BALANCE AFTER SELLING CAR(S) AND PAYING OFF LOANS
In order for this plan of mine to work successfully, I needed to pay off the existing weatherization loan we had. Since I don’t have a big chunk of cash just sitting around, I needed to use some of the proceeds from selling our cars to pay off the loan. What was left over, I could either save or invest, or I could use as part of the down payment on the new car. I determined this amount by subtracting the three-year loan interest amount (step two) from the estimated trade-in/sale value of our vehicles (step one).
STEP SIX: CALCULATE MONTHLY AND THREE-YEAR COST OF NEW CAR
Calculate the monthly cost of the new vehicle to determine how much you will pay each month and to see how much the vehicle will cost you over the course of three months. If you’re using the spreadsheet included with this blog, you can use the calculations in step five to plug into your preferred automaker’s lease or loan calculator to generate the numbers you’ll need in this step. This will allow you to compare your current expenses to potential future expenses. The number you come to here may appear higher than your current expenses, but hold onto your hat because…
STEP SEVEN: APPLY INCENTIVES
Here’s where things get really interesting! Electric vehicles have very little maintenance, electricity is relatively cheap compared to gas, and there are multiple incentives available from utilities, state governments, and the federal government. If I bought an electric vehicle from a manufacturer with all the incentives available, I’d have $9,000 in my pocket from incentives alone after purchase.
STEP EIGHT: DETERMINE THE TOTAL THREE-YEAR COST OF THE NEW VEHICLE AFTER INCENTIVES
If the dealership gave good trade-in values for our Subarus, we’d use the funds to pay off our weatherization loan and lease the Mach-E for an out-of-pocket cost of $7,812 over the next three years, including incentives. I reached this number by subtracting the incentives calculated in step seven from the three-year cost of the new vehicle after the down payment in step six.
FINDING THE RIGHT VEHICLE
Armed with all this information, my wife and I started looking for an electric vehicle to fit our needs and budget. It was important to us that we have a family vehicle that could reliably take us to Boston multiple times a year in all weather conditions, go on the occasional long-distance road trip, get up the steep hill at my parent’s house in the winter, and look good.
At the time, there were only three options that fit all these criteria. The Tesla Model Y, the Ford Mustang Mach-E, and the VW ID.4. After watching a great many reviews, we settled on the Mustang Mach-E, something I never thought I’d say. Our second choice was the Volkswagen ID.4, but the all-wheel-drive version won’t be available till mid-2022 so that immediately disqualified it. The Tesla Model Y was last on our list, even though it technically has the best infrastructure and longest range of the three cars. From everything I’d seen and read, the build quality of most Tesla vehicles appears to be lacking. Being persnickety about things like that, I wasn’t willing to buy a Tesla even for its aforementioned benefits.
STEP NINE: CALCULATE NET SAVINGS AFTER THREE YEARS
The cost to lease a Mach-E on the Ford Options Plan—a payment plan that resembles a loan more than a lease—fit into the budget I mentioned early in this piece. If I was able to finagle the dealership to offer me the higher range of my Kelly Blue Book estimated trade-in values, we’d be able to afford the standard range, eAWD Mach-E.
Here is how the math works out. Based on the estimated interest on the weatherization loan over the next three years combined with the cost to run the Subarus during that same period ($16,541.80), we could save roughly $8,729.8 ($16,541.80 – $7,812) and get ourselves a brand-new electric vehicle, not including the savings on gas. You can find this number for yourself by taking the results from step four and subtracting the price of your new vehicle over three years (step eight).
A NOTE ON TAX INCENTIVES
It’s worth mentioning that in order to make this plan work within our budget, we are relying on a $7,500 EV tax credit, which is included in the incentives I mentioned in step seven. This is important because while we started leasing the car in May 2021, we won’t get the tax credit until early 2022. That may make a plan like this inaccessible to someone that does not have the means to wait for a check from the IRS. This particular tax credit is also non-refundable, so unless you owe $7,500 or more, you won’t see the full credit amount.
The monthly cost of our car is also quite high compared to most traditional leases. This is partly due to the way Ford structures the Ford Options Plan and partly due to the fact that we are paying a lease on the full value of the car, not the value of the car after incentives. That means we will receive a big lump of cash in early 2022, but still need to be able to stomach the high monthly payment. This, like the previously mentioned downside to the tax credit, can make electric vehicles out of reach for those with limited monthly cash flow.
HOW IT HAS WORKED OUT
So how has it worked out in practice? My wife and I absolutely love our new car. We initially thought its 211-mile range would be restricting, but in practice, we have never once had to worry about charging. Because electric vehicles are so efficient, we can go pretty much anywhere in Vermont (there and back). When we drive to Boston, we stop for about 15 minutes for a bathroom and food break, and we plug in during that period. By the time we get back to the car, the battery is nearly full.
Finding charging stations on a road trip is a breeze. The car automatically notifies you if you will soon be out of range of the nearest charger to complete your journey, and if you use the built-in navigation, the car automatically adds chargers to your trip based on charging speed, availability, and your current range. That means all you have to do is plug in your final destination and the car will find the quickest route to your destination, including charging!
The other benefits of an electric car are well worth the mindset change. With no engine, the car is safer in front impact collisions, giving us more peace of mind with our son in the back seat. Because the electric motors slow down the car, we only need to use the brakes in emergency situations and won’t have to worry about replacing brakes either. Some electric vehicles have gone well over 100,000 miles before needing new pads and rotors! Plus, we’ve only seen our electricity bill go up $15 a month as a result of charging the car at home. This is a far cry from the nearly $150 a month we were paying for gas. The rare occasions that we charge on the road are either free, complimentary from the automaker, or just under the typical cost to fill up on gas.
And they are so quiet! I’ve sat in cars from luxury brands that aren’t as quiet as this one. And did I mention that there are no gears? You no longer have to deal with an automatic transmission that needs to hunt for gears on a hill or slows down as you try to merge onto a highway.
Does it feel weird having a red electric Mustang with four doors and also having saved money? 100%. It doesn’t even feel possible to me, but the math works out. I feel as though I have to explain to everyone who sees it that I don’t actually make a lot and this vehicle wasn’t an extravagant purchase.
Electric cars are here, and they are amazing. Still hesitant about making the jump? Drive Electric of Vermont hosts EV days where you can chat with owners and experience the cars for yourself. See their upcoming events at driveelectricvt.com.
*Values in this blog have been modified to protect the privacy of the author.
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