Tuesday, February 17, 2009

How the Chevy Volt doesn't save you money

Everyone discusses the MPG of cars and for good enough reason. If you're interested in reducing our dependence on foreign oil then you want to reduce the number of gallons you use. However the MPG metric breaks down when you try to compare normal gasoline cars with electric vehicles (like the forthcoming Chevy Volt). A much more relevant metric is Miles per Dollar rather than Miles per Gallon.

So lets work out the Miles per Dollar for a standard car and also for the Chevy Volt. First we have to make some assumptions about gasoline cars. Lets say gas costs $1.95 a gallon. Lets also assume that your average sedan gets about 27 miles per gallon.

Now we have to make some assumptions about the cost of electricity and figure out how much the Volt uses. According to wikipedia, the Volt uses only electricity for its first 40 miles. To run those first 40 miles, it uses up 8kWH of electricity. Depending on where you live, electricity in the US costs as little as 6 cents/kWH in places like Washington and Idaho and up to 17 cents/kWH in New York and California. After the first 40 miles, the Volt operates like a normal car running at 50MPG.

I'll omit the math, but we get the following result:
Normal Sedan MP$: 13.8 miles per dollar
Chevy Volt first 40 miles MP$ (cheap electricty): 83 miles per dollar
Chevy Volt first 40 miles MP$ (expensive electricty): 29 miles per dollar
Chevy Volt after 40 miles MP$: 26 miles per dollar

So depending on where you live and how much you drive, the Volt will be anywhere from 100% to 500% cheaper to run compared to an average Sedan.

That sounds a whole lot cheaper, right! Wrong! To see why, we have to take the calculation a step further.

Suppose you drive 50 miles round trip to work every day and you live in a state with average gas prices, like Texas. In your sedan the daily commute should cost you about $3.61. But in a Volt it will only cost $1.19. Thats a savings of $2.42 every day. Now say you're a workaholic and you make trips like this 7 days a week for 52 weeks a year. Thats a yearly mileage of 18,200 miles, which is pretty high for most people. Driving a Volt you'll get a savings of $881.28 per year! But lets assume that GM engineers are even better than we expect and instead of saving $881.28 a year, we actually save $1000 a year.

Still with me? Good.

Now here comes the big question: much more do you think the Volt costs compared to a similar gasoline car? Lets compare it to a Chevy Malibu which gets about 27MPG and costs about $22,000. The final sticker price on the Volt is not set yet, but everyone says GM wants to get it down to around $32,000 (thats including all of the tax breaks). But lets give GM some credit (even though they're already getting enough from our government!) and assume that in a couple of years they will be able to bring it down further to $28,000.

So a Volt will certainly cost at least $6,000 more than a Malibu. Suppose that instead of putting that six grand into your car, you have the option of putting it into savings earning 5% interest. Therefore, in order for the Chevy Volt to win out over the Malibu, you will have to drive the Volt for ten years!

Thats right. If you want to make back your initial investment in a Volt, you have to drive the car for ten years!

Unfortunatly, GM says that the Volt battery is only expected to last ten years.

There are plenty of reasons to buy a Volt, but saving money isn't one of them.