Five reasons why you should only buy an electric car if your income exceeds $120,000 per year

 

Five reasons why you should only buy an electric car if your income exceeds $120,000 per year

Electric cars have become more affordable since 2012 but are still much more expensive than internal combustion engine cars. The average new and used electric car falls outside the price range of the average American.

EV prices are expected to decline over time as competition increases and technology improves, with current EVs becoming more efficient and cheaper to fill than gas-powered vehicles, potentially saving up to $18,440 over ten years.

Owning an electric vehicle may require additional costs for home charging equipment, public charging fees, and possibly higher insurance premiums due to the higher initial cost and potential repair expenses, although regular maintenance costs are lower than gas-powered vehicles.

It's hard to believe that it's been 12 years since the first widely popular electric vehicle (EV), the Tesla Model S, was introduced to an expectant but skeptical American public. In 2012, you had to pay between $57,400 and $87,400 for the Model S, depending on the model (about $78,428 to $119,419 in today's dollars), which is not a small amount then or now.

Depending on the brand and model, electric vehicles have become more affordable since 2012, mainly due to cost-cutting by electric automakers (primarily Tesla) and federal tax credits on certain models. However, even with the shift to electric vehicles, EVs are much more expensive than vehicles powered by internal combustion engines (ICEs).

It would help if you considered replacing your gasoline-powered car with an all-electric car for many reasons. Electric cars have gained popularity like never before. But they're not for everyone and are not smart buys if you can't afford to keep them on the road. Being car-poor for owning an electric car is wise if you plan to live in your electric car to save money on rent and utilities.

A practical way to determine whether you can afford an electric car at a reasonable price is to use a percentage of your income budget limit and look at the total cost of ownership over time.

"All too often, people buy a car without having a realistic understanding of what it will cost to own it," financial samurai Sam Dogen wrote on CBNC's Make It podcast. "As a result, they spend too much and go over their budget."

1. Initial cost

As inventory increases and MSRP costs slowly decline, making them closer to "traditional" non-luxury vehicles, EVs are becoming more readily available to people who previously could not afford them. But how much do you have to earn to afford one?

Many experts have jumped on the 10% rule, which means you should only spend up to 10% of your income on a car, including the monthly car payment, insurance, maintenance, and gas (or electric/charging fees). So, if you make $50,000 a year, you shouldn't spend more than $5,000 on a car, all expenses included.

Can anyone do that? Using the 10% rule, purchasing a new electric car with an average price of $55,242 would require you to make a ridiculous average income of $552,420. The average listing price for used cars at the end of January 2024 was $25,328, down 4% from the previous year but still expensive. Given that the median household income was $74,580, according to the U.S. Census Bureau, most new and used electric cars are well out of the price range of the average American.

According to a 2023 report from Edmunds, more Americans are committing to monthly car payments exceeding $1,000 than ever before. Using an example from Capital One, on a typical 4-year loan, an electric vehicle with a transaction price of $53,000 would cost about $1,100 per month. You would need to make at least $120,000 to pay this amount.

2. Long-term saving

As competition continues to increase, better technology, cheaper batteries, and source materials help EV makers normalize MSRP; prices will fall and eventually match those of gas-powered vehicles. Regardless, right now, "every electric vehicle model in every state is cheaper to fill than a gas-powered vehicle," according to Energy Innovation.

Current electric vehicles are 2.6 to 4.8 times more efficient at traveling a mile than ICE vehicles. Even with the slightest cost savings, the average cost of filling an electric SUV is still $15 cheaper than a Honda CR-V, according to Energy Innovation. The average savings of filling a truck and sedan were about $24 and $26, respectively.

Paying less over the life of your electric vehicle will offset the initial cost of your electric vehicle. Some argue that it's not enough to make a big difference when you spend more to buy one, but most agree with groups like the Environmental Defense Fund, which

It is estimated that owning an electric car will save you up to $18,440 over ten years.

3. Shipping fees

An EV charger at home would be best, but it's costly. According to Capital One, charging cables come from mobile devices. The first one comes with new EVs and a common 120-volt home outlet to work, but if you need an upgrade in the outlet or equipment, you may be paying around $300 to $600. Installing a Level 2 or 3 station at home (which can charge an electric vehicle battery to 80% in four to 10 hours or quickly charge the battery), plus labor and any upgrade to the transformer and circuitry, can cost you between $500 and $700 and tens of thousands in a row.

If you live in an apartment or place without designated parking, relying on public chargers may be more difficult. Your ability to handle public charging costs should be taken into account when making your decision. The infrastructure now is not reliable and will cost you time and money on the go. Expect to pay between $10 and $30 on average to charge an electric vehicle from nearly empty to nearly full with a commercial charger.

4. Maintenance and repair costs

Although many maintain that average EV repair costs are comparable between ICE cars and EVs, unexpected repairs can be costly. "The rate of repairs may decline," Bill Newman, head of SAP's North America automotive division, told Business Insider. "But repair costs will rise."

However, regularly scheduled maintenance is less expensive with electric vehicles. According to AAA, electric cars don't need as much maintenance as gas-powered cars because they don't need an oil change or air filter replacement. "If maintained according to automakers' recommendations, electric vehicles cost $330 less than a gas-powered vehicle, for a total of $949 per year," AAA says.

5. Insurance premiums

You will never be charged anything just for driving an electric car. However, your insurance premiums may be higher because EVs typically cost more than ICE vehicles (about $7,000 more if you compare KBB's current average transaction rates), and repairs, although less frequent, may cost more and require a professional. As electric cars become the standard of the automobile market, costs should come down, but for now, this is another cost reality of owning an electric car.