Do electric cars actually make sense financially?

By Michael Boxwell on July 21, 2011 5:49 PM

There’s no getting around it: right now, electric cars are expensive to buy. Compared to conventionally powered cars, the purchase price of an electric car can be anything from 15% to 50% higher.

There are two reasons for this: firstly, electric cars are a new technology, produced in small numbers. Car makers have 100 years experience of how to make combustion engine cars cheaper and high production volumes ensure low prices. Therefore, electric cars cost more money to build.

Secondly, electric cars rely on batteries that use lithium. Lithium itself is not a rare material, but until recently has only ever been needed in small quantities. It’s therefore expensive. Now lithium is being used in many more applications, it’s taking time to increase supply.

Yet lithium prices will drop, batteries will get more efficient and electric car production volumes will increase. Over time, the purchase price of an electric car will reduce. But if you’re in the market for a car today, does that mean you’d be better to wait before buying electric?

Not necessarily. The UK Government currently offers a £5,000 subsidy on a number of electric cars. Buy a Peugeot iOn, a Nissan LEAF, a Mitsubishi i-MiEV, a Citroen C-Zero or a Tata Indica Vista and the government subsidy will mean you won’t be paying vastly over the odds: a Nissan LEAF becomes comparable in price to a high spec Volkswagen Golf or Ford Focus.

Renault has another solution: buy the car, rent the batteries. Next year’s Fluence ZE is a family-sized saloon with swappable batteries. Prices start from £17,850, and the batteries cost £75 per month. This reduces the purchase price, whilst the battery lease is similar in cost to a single tank of petrol.

Where an electric car really saves money is on running costs. Driving 8,000 miles in a Mitsubishi i-MiEV and charging it overnight will cost you in the region of £80 per year. Road tax is free. If you live or work in central London, you are exempt from paying the Congestion Charge and you get free charging and free parking facilities in many towns and cities.

Electric cars are also beautifully simple - the motors have one moving part. An internal combustion engine has many moving parts - pistons, cams, valves and gears, all of which require lubrication by oil and are set in motion by exploding a flammable liquid. You've got to admire its craftmanship but it is seriously complicated piece of machinery, requiring regular servicing. An electric motor does not, meaning there's less to go wrong and servicing costs less. Nissan reckons servicing a LEAF in the UK will cost you around £11 per month versus £30 for a Ford Focus - that's a saving of £228 per year alone.

Company car owners also benefit from owning an electric car. With no benefit-in-kind liability, a 40% tax earner swapping a Ford Focus company car for a Nissan LEAF could find they are over £300 better off each month: that’s like getting a £5,000 annual pay rise just for driving an electric car.

Resale values are also high. A three year old Nissan LEAF is predicted to have a 47% residual value, making it a far better proposition than any other car in its segment.

Add all that together, and an electric car really can start to make financial sense right now.