Can electric cars save you money?

Can electric cars save you money?

Q&A: Can electric cars save you money?

Q: Our monthly fuel bill is becoming a significant part of our household budget. Should we consider switching to an electric car?

A: With the cost of living rising, many of us are looking for ways to keep a lid on household expenses. If fuel is a major drain on your monthly budget, it’s only natural that you may be considering a switch to an electric vehicle (EV).

While EVs are known for their hefty price tag, the longer term benefit of cheaper running costs can present a compelling case if you’re travelling a decent distance.

And, the Government is taking steps to make EVs more affordable. For example, the October 2022 Federal Budget included a proposal to provide fringe benefits tax exemption on eligible EVs. The Treasury Laws Amendment (Electric Car Discount) Bill 20221, is anticipated to make employer-provided electric cars (worth about $50,000) roughly $9,000 cheaper. And, employees who take advantage of salary sacrifice provisions to buy an electric car, could save up to around $4,7002.

While EVs most certainly have the environmental edge, could the numbers stack up for you and your household? We look at some of the costs to factor in, if you’re thinking about a move to electric.

Upfront purchase price

While Government intervention is on the cards, purchasing an electric car is still likely to set you back more than a petrol vehicle, at least whilst the market is still maturing and there is only a limited range available.

For example, at the higher-end of sedans, the Polestar 2 can cost around $63,900 and a Tesla Model 3 around $59,900, and, in terms of SUVs, one of the least expensive EV compact SUV models, the MG ZS EV, can set you back around $44,9903. By comparison, according to Canstar Blue4, the average amount Austalians spend on new small cars is $26,150, while new sedans command an average spend of $44,557, and new SUVs $43,545. Depending on your budget and preferences, these prices are not a million miles apart, though there is still an evident gap.

Like all new technologies, the cost of buying an EV is likely to come down as electric becomes more popular, more manufacturers enter the market, and with an increase in Government involvement, such as the introduction of further EV measures/incentives. Citroen, Mazda and Peugeot are just some of the car manufacturers expected to release new EVs in the coming year.

Of course, the upfront cost is only the starting point when working out how much a car might cost you over the long term. While EVs typically cost more to purchase, depending on the car you choose and how many kms you travel, some (or all) of this cost could be offset by cheaper running costs. Let’s start with the car’s power source.

Battery charging vs fuel costs

In terms of the cost to charge an EV, the Electric Vehicle Council estimates that EVs are 70 percent cheaper when it comes to power, saving around $1,600 a year in fuel costs5. Of course, this may depend on how far you drive and the model you choose.

Taking a look at the Hyundai Kona Electric, which is currently priced around $54,5006, their online ‘savings estimator’ claims that a Kona Electric housed in NSW that does between 20 – 30 kilometres a day could save $876 a year on fuel7. This assumes petrol costs $2.00/a litre and electricity costs 34 cents per kWh. Not quite the Electric Vehicle Council’s claim, but still a sizable saving.

It’s also worth bearing in mind that the cost of powering an EV may be far less (or even negligible), versus a regular petrol-powered car over time, if you have solar panels on your roof and battery storage where this power can be stored.

Ongoing maintenance

Generally, it can be cheaper to maintain an electric car, given battery-powered engines are much simpler to service compared to internal combustion engines. According to Electric Vehicle Council data8, 41 percent of Tesla owners say they save more than $1,000 a year on maintenance. Again, any potential savings on maintenance costs would presumably depend on your choice of car (e.g. make and model).

It’s worth pointing out, however, there are far fewer mechanics that can service an EV versus an internal combustion engine car. So, if you have an accident, it may take much longer to fix the vehicle versus a petrol car.

Battery replacement

Battery replacement is possibly the one area where the price gap between an EV and petrol car seems most significant. A new EV battery could cost anywhere between $12,000 and $20,0009 for vehicles such as the MG ZS EV, BMW i3, Nissan LEAF and MINI Cooper SE, but significantly more for higher-end vehicles such as Tesla.

That said, unlike the batteries in standard cars that typically last between three and five years10, it’s worth noting that all EVs on sale in Australia are covered by at least an eight-year battery pack warranty, which guarantees against defects, and guarantees that the battery will operate at more than 70 percent capacity during that time.

Making the most of Government incentives

As part of the Government’s initiatives, many states and territories offer discounts and concessions for EV owners on things such as motor vehicle taxes and registration11. For example, jurisdictions such as the ACT offer free rego for up to two years. In Queensland and Tasmania, stamp duty is waived. In Victoria, the first release of 4,000 subsidies valued at $3,000 are available for eligible new zero emissions vehicles purchased on or after 2 May 2021. In NSW, more than 20,000 subsidies are currently available, offered until the subsidies are fully committed, or for three years, whichever occurs sooner.

This is far from an exhaustive list and it’s worth checking out all the different incentives available where you live before making your decision between an electric and regular car.

Final thoughts

For a while to come, purchasing an electric car is going to be a fairly sizable investment that may (or may not) pay off for you over the long term. When weighing up whether an electric or petrol vehicle is going to suit you and your budget best, it really depends on your personal circumstances. What’s key is to crunch the numbers, decide what’s important to you, and how long you can wait to realise your investment.

Like any big financial decision, it’s crucial to do your research until you feel confident about making a decision.

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General Advice Warning

The material on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any information in this website is intented to be general in nature & not to influence any action related to any particular product or type of financial product, it should not be interpreted as advice. Before making any financial, investment or insurance decisions you should consider whether it is appropriate to your particular needs, objectives and financial circumstances. In addition, the examples provided on this website are provided for illustrative purposes only. Although every effort has been made to verify the accuracy of the information contained on this website. The Advice Exchange, its officers, representatives, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this website or any loss or damage suffered by any person directly or indirectly through relying on this information.

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