Financial Face-Off: Electric vehicles vs. gas-powered cars: Which one is cheaper to buy and own?

The price cuts worked as intended in both cases, and orders for both Ford
F,
+0.04%
and Tesla
TSLA,
-1.52%
increased.

If you’ve been thinking about an electric vehicle, you might be wondering if those cheaper prices, and the $7,500 federal tax breaks on some EVs, mean it’s time to take a closer look. So let’s examine: Which one costs more, an electric vehicle or a gas-powered car?

Why it matters

Car prices have shot up over the last few years, and though they’re not climbing as fast as they once did, they’re still steep. Higher prices coupled with higher interest rates have made auto loans more expensive, and more people are falling behind on their payments.

Earth’s temperatures are rising as well, and we just put the hottest month ever into the record books. These are two separate trends, but they both factor into the question of buying an EV vs. a gas-powered vehicle. Americans are looking for ways to bring down the cost of car ownership, and we’re also looking for ways to fight the climate crisis, which is caused in part by vehicle emissions from internal-combustion engines. Is there a way to save money while helping to save the planet? 

The verdict

If you look only at the cost of the car, gas guzzlers are cheaper than electric vehicles on average. In June, the average transaction price for an EV was $53,438. That’s a 20% drop from a year prior, but still above the $48,808 average price for new gas-fueled vehicles, according to Kelley Blue Book. 

But if you look at the total cost of ownership over the life of the car, an EV can often be less expensive than a gas guzzler.

My reasons: Here’s when an EV is cheaper than a gas-powered car

If you’re lucky enough to be in the market for a luxury car, the EV version will usually beat out the ICE vehicle when you take into account the cost of fueling the car, maintenance, repairs, insurance, depreciation and other out-of-pocket expenses over time. For example, it costs $39,547 to own a Tesla Model 3 for five years, vs. $63,075 for the Audi TT, Kelley Blue Book found. In fact, the Tesla Model 3 has the lowest five-year cost-to-own of any luxury car, according to Kelley Blue Book.

An EV “almost always is going to cost less to drive than a gas-powered car,” said Keith Barry, a writer and editor covering autos at Consumer Reports. But whether the EV’s cheaper operating costs will offset its higher average sticker price “really depends on where you live and what kind of car you purchase,” he said.

If you’re interested in a pickup truck and you live in a region like the West Coast, where gas prices are relatively high and electricity prices are relatively low, the Ford F-150 Lightning Extended Range pickup will probably be cheaper over time than the Ford F-150 Hybrid, according to Consumer Reports’ latest analysis of EV costs — and that was written before the Lightning was eligible for the $7,500 tax break, so the Lightning is arguably even a better deal now, if the buyer meets the tax break’s income requirements.

Where you live can play a big role when comparing prices on EVs vs. ICE vehicles. That’s because in addition to the federal $7,500 tax break that some EVs qualify for, there are also some state and local financial incentives for EVs. In some cases, your local power company may give you money for installing an electric-car charger. Both Consumer Reports and Kelley Blue Book have tools for finding these incentives in your area.

And speaking of chargers, if you’re thinking of getting an EV, it’s important to figure out where you’ll charge it and how much it will cost you to install a charger at home (where most people charge their EVs) before proceeding.

Is my verdict best for you?

On the other hand, if you need a three-row SUV, you may not have much of a choice on the EV vs. gas guzzler question, because EV versions of three-row SUVs are hard to come by, Barry said. Several automakers have plans to make this type of EV but they’re not on the market yet. 

And when it comes to smaller, relatively cheaper cars around $30,000 and under, the EV version is not necessarily cheaper to own over time than the gas or hybrid version. For example, Consumer Reports found that Toyota Corolla Hybrid
TM,
+1.27%
was a better deal over time than the Nissan Leaf SV Plus
NSANY,
-0.90%,
an electric vehicle. The Toyota Corolla Hybrid costs $25,154 up front, vs. $33,385 for the Nissan Leaf.

Unfortunately for budget-conscious EV shoppers, General Motors
GM,
+1.09%
is ceasing production on the cheapest EV in the U.S., the Chevy Bolt, which sells for $26,500.  

Keep in mind that cost-to-own calculators comparing EVs to ICE vehicles are based on many moving parts, such as the projected resale value of an EV, and the cost of gas per gallon. This Car & Driver cost-to-own calculator was written in 2022, when the national average for a gallon of gas was $3.70. Prices went up to $4.00 per gallon after that; they’re currently at $3.80 per gallon. The U.S. Department of Energy has a handy vehicle-to-vehicle comparison tool; it assumes a $3.08 per gallon gas price.

Behind Door No. 3: Consider hybrids or leasing

If the higher price tags on new EVs are out of reach for you, but you still want to lessen your car’s environmental impact, definitely consider a hybrid, Barry said. While they’ve traditionally been considered “poky” cars designed solely for fuel-efficiency, today’s hybrids are more powerful and more enjoyable to drive, he said.

“A hybrid is a compromise, but it’s a pretty good one at this point if you’re not ready to fully go electric,” Barry said. Hybrids are powered by a combination of gas and electricity, but they don’t need to be plugged in, because the engine charges the battery. Plug-in hybrids also run on both gas and electricity, but their batteries need to be recharged at charging stations. “Plug-in hybrids provide many of the same strengths as electric cars without some of the limitations,” according to Kelley Blue Book.

Another more affordable option for people who are curious about EVs but may be hesitant to buy one is to lease an EV, said Rachel Goldstein, a research and modeling manager at Energy Innovation Policy & Technology LLC, a think tank that analyzes climate policy. Energy Innovation compared the costs of EVs vs. ICE vehicles in a 2022 report and found that most EVs were cheaper to own over the life of the car; the report is now being updated. “There are some pretty attractive economics there,” Goldstein said of leasing an EV, especially because leased electric vehicles now qualify for the $7,500 tax credit.

Leasing — which usually lasts about three years — lets you try out an EV while the technology on these cars is still evolving, and protects you from fluctuating resale values. “I actually think leasing is a sweet spot for EVs,” Barry said. With makers like Ford and Tesla slashing prices, it’s unclear what will happen to those prices in the future, which can affect your car’s resale value. “It’s too new a marketplace to know what’s going to happen to these cars when it comes to resale value, and leasing protects you against that.”

Tell us in the comments which option should win in this Financial Face-off. If you have ideas for future Financial Face-off columns, send me an email at lalbrecht@marketwatch.com.

From the archives [April 2023]: Here’s a list of the 10 cheapest electric cars out there