Gas vs. Electric Vehicles: Which Costs Less to Own?

While EVs may cost more upfront, they are cheaper to own on a yearly basis due to their reduced fuel and maintenance costs and tax rebates for those who qualify, according to 2022 data from AAA.¹

Overall, the AAA study found that the cheapest car to drive is a small, gas-powered sedan, followed by an electric vehicle. Meanwhile, the most expensive car to drive is a 1/2-ton crew cab pickup and a medium SUV, vehicles both known as gas guzzlers.

Purchase Price

There’s no doubt that electric vehicles currently cost more to purchase than gas-powered cars, with an average price of $65,291 compared to $48,094, according to Kelley Blue Book (KBB).² However, KBB reports that the price gap will close as nonluxury car manufacturers, such as GM, Ford and Hyundai begin to make and sell EVs as opposed to just luxury manufacturers like Tesla.

But don’t suffer from sticker shock. Overall, EVs may be cheaper to drive when you take into account tax rebates, fuel savings and more.

Fuel

Electric and hybrid vehicles have the lowest fuel costs. Compared to rising gas prices, electricity costs are generally lower.

Maintenance

Electric vehicles are also the least expensive to maintain, with no engine and mechanical breakdowns to worry about.

Insurance

However, one area where electric vehicles rack up higher fees is with the cost of car insurance. Because EVs have higher purchase prices than gas-powered vehicles, they are generally more expensive to repair and, thus, more expensive to insure. However, the difference is pretty minimal — insuring an EV is only about $100 more than the lowest-cost vehicle type to insure, a compact SUV with front-wheel drive.

Another disadvantage of EVs is that they depreciate more, which makes sense when you consider their higher prices to begin with. For the least amount of depreciation, buy a small sedan, which loses only $1,086 of its value with an annual mileage of 10,000.

Tax Credits

Electric vehicles are the only type of vehicle that will save you money on your tax return in the form of federal rebates. EV owners save, on average, $119 per year on their taxes, licenses and registrations.

However, not every EV owner qualifies for this rebate. To be eligible, you must purchase:

• A plug-in electric vehicle or fuel cell vehicle
• Have purchased your vehicle new before Jan. 1, 2023
• A battery capacity of at least 7 kilowatt hours

Here is a list of electric vehicles that qualify for a rebate of up to $7,500, according to the United States Department of Energy.

Along with the vehicle qualifications, there are restrictions on the owner and usage of the vehicle that affect rebate eligibility:^3,/sup>

• You must use the vehicle, not resell it.
• You must use the vehicle in the U.S. primarily.
• Your income cannot exceed:
  • Married couples filing jointly: $200,000
  • Heads of households: $225,000
  • All other filers: $150,000⁴

Note that this is not an exhaustive list of qualifications. Check the IRS website to see if you qualify.

Hybrid vehicles, otherwise known as HEVs or plug-in hybrid electric vehicles (PHEVs), use a combination of electricity and gas, so it’s no surprise that they are, on average, more expensive than electric vehicles in terms of fuel, maintenance, taxes and finance charges.

However, hybrids have the distinct advantage of being able to depend on gas if you’re driving through an area that lacks public charging points, which is a barrier for many people considering EV purchases.

You can use this calculator from AAA to determine the cost of vehicle ownership based on your car model and usage: https://www.aaa.com/autorepair/drivingcosts.

So, which vehicle type is right for you? Let’s break it down.

Buy an electric car if:

• You can qualify for federal tax credits.
• You live in an area with a lot of EV charging stations or charging at home is a possibility
• You drive in your home area primarily or have another gas-powered vehicle for long-distance drives.
• You are okay with higher car insurance costs of about 15 percent.

There’s no doubt that electric vehicles are here to stay, especially as their purchase prices decrease and the number of publicly available charging stations increases. However, for most people, they are simply too expensive to purchase right now, even with their reduced driving costs, particularly if you don’t qualify for the federal rebate.