Wednesday, January 9, 2013

Re: Do EV's make good cents or sense?

Barry Stevens saw one of my news articles, 60 kWh Tesla Model S rated at 208 mile electric driving range by EPA, and decided to extrapolate cost of ownership figures he claims shows electric cars do not currently save money and perhaps make no financial sense.  In my article I talked briefly about the cost per mile of electric driving range, and how the 85 kilowatt-hour Model S has the best cost on this measure of any electric car.  Specifically, the 85 kilowatt-hour Model S, costs $77,400 for 265 miles range, or $292/mile of range (note: Tesla has increased the Model S prices a bit since then, so the cost will be a little higher, and I'm too lazy to present up-to-date numbers).

2012 Tesla Model S
Stevens was inspired by what I wrote to go on and develop what he's calling a "Life Cycle Cost" for the Model S and a couple dozen gasoline powered cars.  Based on his calculations he comes to the conclusion that the Tesla Model S "make little financial sense" while, he says, "Critically acclaimed cars such as Audi A6 and Q7, Cadillac CTS, BMW even the base Corvette are better deals."

As Stevens himself says, "The problem is society’s need to get off fossil fuels."  I agree with him that the clean vehicles not only need to be clean, and eliminate fossil fuel dependency, but they must also  be financially viable and at a minimum give cost parity with incumbent fossil fuel vehicles.  It's too early, in my opinion, to be looking for cost parity but it's worthwhile to evaluate the costs of different kinds of vehicles if only to see how close we are to achieving cost parity or true savings.

For the record, in that news article, I was expressing solely the cost to achieve a certain electric driving range.  That comment was not about total cost of ownership nor operational cost.

Stevens did post a spreadsheet showing his calculations.  This listed the MSRP, fuel efficiency, driving range, cost per mile of range, and cost after 60,000 miles of operation.  The latter is the number he published and by which he claimed the Model S is not financially sensible.  Let's take a closer look at that calculation.

What he did was to add the purchase cost of the vehicle to the fuel cost for 60,000 miles.

For example the Toyota Camry LE Sedan comes out to cost $29,659 for MSRP and 60,000 miles worth of fuel.  Never mind that the Camry is not in the same class as a luxury sedan like the Model S, based on this calculation the Camry costs $40,223 cheaper than the 60 kilowatt-hour Model S.

But there are some flaws to his reasoning.

First, how many miles will the Model S last?  That's an unsettled question because it's a brand new car and we don't have experience in the field with it to say if the typical Model S owner will keep their Model S for 60,000 miles, or 100,000 miles, or 150,000 miles, or 600,000 miles, or 10 miles.  To say that "Life Cycle Cost" at 60,000 miles should include the full MSRP says he expects the value of the vehicle to be $0 at 60,000 miles.  Really?  Most cars still have quite a bit of value at that age. 

In particular I am expecting the Model S to have a heck of a lot of residual value.

What he should be using is the purchase cost minus residual value at 60,000 miles.

Another flaw I see is the limited model for "Life Cycle Cost."  Those were his words specifically, "Life Cycle Cost" and for most cars within 60,000 miles there will be other costs besides fuel.  What about insurance, maintenance, oil changes, tires, etc?   Electric cars tend to not require maintenance and certainly do not require oil changes.  But his Life Cycle Cost column includes only MSRP and Fuel.

Another flaw is a detail of information Stevens skips past in his rush to judgement.  Namely, the Model S has the lowest fuel cost of any vehicle on the list.  The 60,000 mile fuel cost for the 60 kilowatt-hour Model S is $2,493 and for the 85 kilowatt-hour model it is $2,706.  Among the vehicles he listed the closest is $4,158 for the Ford C-MAX Hybrid SEL, a car that is EPA rated at 47 miles/gallon.  The most expensive, at $13,959 for 60,000 miles worth of fuel, is the Cadillac CTS V Coupe.

This factoid is very important to consider, that electric vehicles have significant operational cost savings.  I went over this in a news article over a year ago, Why electric cars are cheaper to drive than gasoline cars, based on calculating the cost of "fuel" to drive a given distance.  Electricity is a far cheaper fuel than gasoline.

In that article I didn't try to consider total cost of ownership, simply the operational cost of fuel per mile.

In a more recent article, in the Oct/Nov issue of Charged EV's Magazine, titled eFleets: Insight from Early Leaders, I went over information from several commercial fleet owners who are deploying electric trucks.  The fleet owners said they see significant fuel cost and maintenance savings with their electric trucks.   Because the maintenance requirements are smaller, the trucks don't have to be in the shop as often, and can be on the road more often, improving the utilization rate.  However at the current price premium for electric trucks they calculate diesel costs would have to be over $10/gallon for todays electric trucks to be financially viable.

It's expected battery prices and vehicle prices will continue to fall in the coming years, which will lower the price premium over diesel trucks.  Additionally, it's expected the long term direction for fuel prices is UP because of constraints on fuel supply (a.k.a. Peak Oil) even if in the short term you have market manipulation in the form of hydraulic fracturing.  

And, by the way, "commercial trucks" in this case refers to the sort of medium size truck that FedEx or a utility company uses for deliveries, or for work trucks in the field.  PG&E is exploring a range of plug-in hybrid and all electric trucks for various use cases and sees a wide range of advantages, such as the lower noise means they can operate trucks at night to fix utility lines without waking up the neighbors because of noisy diesel trucks.

To get back to Barry Stevens and his blog post - I think it's clear that his "Life Cycle Cost" model is rather simplistic.  But did it give him a bad conclusion?  Probably not.  His choice here was to compare an expensive luxury electric car against the cost of other gasoline (and hybrid) cars.  Tesla Motors is designing "no compromise cost is no object" electric cars, rather than trying to optimize for cost and benefit.  Further, the economics for electric vehicles currently aren't favorable, as the data I mention above from the commercial fleet owners demonstrate.  Battery prices need to fall, and they will, in time.  Fossil fuel prices need to rise, and they will, in time.

Source: dailyenergyreport.com, Barry Stevens' spreadsheet
 

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