The news outlets are buzzing today with General Motors' announcement that its electric car, the Chevrolet Volt, will get a whopping 230 miles per gallon in the city. Needless to say, owners won't be on a first name basis with their local gas station attendant. The catch, however, is the price. GM expects the car to start at $40,000. I was wondering how many miles you would have to drive in order for that to pay off, so I did a little math.
I used the Toyota Corolla (regular, non-hybrid vehicle) as my comparison, since it's popular and similar in style. According to Toyota's website, it gets 26 miles per gallon in the city and starts at $15,350.
I want to explain a few assumptions I used in my calculations to avoid confusion:
- I found that the national average of gasoline prices is approximately $2.647.
- Based on oil futures, I increased that 16% to $3.095, since we're talking 2011 prices.
- I similarly increased the price of the Corolla to take 3% inflation into account between now and 2011, making its price $15,811.
Okay, now for some math. The price difference in 2011 between the Volt and Corolla should be approximately $24,189. Next, I figured out how much it would cost to drive a mile in each car. That's around 11.9 cents per mile for the Corolla and 1.3 cents per mile for the Volt. Thus, it's around 10.6 cents more expensive per mile to drive the Corolla.
From this point, it's pretty simple. Just divide the price difference by how much more per mile it costs to drive the Corolla. That tells us that you would need to drive the Volt approximately 229,000 miles before you break even for paying more to buy it.
Clearly, my methodology takes a few short cuts. Each year you drive the Volt, the price of gasoline may continue to increase. So the number would likely be a little less. For example, if you assume $4 per gallon, then you'd need to drive around 177,000 miles to break even.
There's a little more help that Volt drivers will get -- from Uncle Sam. There will be a government rebate of $7,500 available when you buy a Volt. That lowers its potential price tag to $32,500, reducing the difference in 2011 prices between the Volt and Corolla to $16,689. As a result, you would need to drive approximately 158,000 miles to break even, based on my other original assumptions.
158,000 miles is still a lot. Unless the price of gas truly skyrockets well past the $3 level after 2011, then the argument for purchasing a Volt will remain based more on environmental ethics than economics. That is unless you drive cars for a really, really long time.
That's not to say that a time won't come when a car like the Volt won't be utterly essential. We all know that gas prices are doomed to rise drastically eventually, as we use up all our supply. How soon that will really happen, however, is unclear.
This also leaves the fate of the Volt a little fuzzy. Its success depends on the public's dedication to the environment, rather than its love of money -- unless GM decreases the price tag, or the government decides to increase the already massive credit for purchasing one. This analysis also suggests that the Volt might not be GM's savior in the near-term.