The 3 most common mistakes made when calculating EV costs and how to avoid them

Many Americans are considering purchasing an EV in 2024. And now might be a good time to buy one. EVs are becoming more affordable, and there is a generous federal EV tax credit of up to $7,500 for electric vehicle purchases.

But before you buy a new electric vehicle, it’s important to understand the total cost of owning an EV. There are several misconceptions and incorrect assumptions that people tend to have about what it really takes to afford all the costs of purchasing an EV.

Let’s take a look at the most common mistakes made when calculating EV costs and see how much money an EV can actually help you save.

Mistake No. 1: Assuming EV fuel costs will be zero

It’s true that electric cars don’t burn gasoline. But that doesn’t mean your EV fuel bill is $0. You’ll still have to pay some money to cover the cost of electricity to fuel your car. There may be higher monthly electricity bills to plug your car into your home or the cost of using public charging stations. (Some charging stations are free, but you can often charge faster if you pay.)

If you charge your EV at home, it’s not “free.” This means it will be added to your total monthly electricity bill. For example, if you drive the average number of miles per month and pay the average U.S. electricity bill, it will cost you about $60 per month to charge your EV at home, according to data from Kelley Blue Book. But when you compare the cost of EV charging to the average amount Americans spend on gasoline each year, the EV savings become clear.

The average American spends $2,148 a year on gas, or $179 a month, according to a study by The Ascent. What if you could replace all of your gasoline costs with just $60 a month for EV charging? In this case, purchasing an EV would save you $119 per month on fuel costs. $1,428 per year.

The lesson is: Buying an EV doesn’t mean you’ll save every penny you used to spend on gasoline. But the savings are still significant!

Mistake #2: Thinking EV car insurance is cheaper

Another big cost of owning an EV is car insurance. Unfortunately, unless you buy the smallest, cheapest EV on the market, the cost of car insurance for an EV is likely to be higher than what you’d pay for a similarly sized gasoline car.

Here are some reasons why EV car insurance is more expensive:

• EVs are more expensive. The higher the price of a car, the higher the price of car insurance, with electric cars being more expensive than gasoline cars. According to Kelley Blue Book research, as of July 2023, the average selling price of an electric vehicle was $53,469, while the average price of a gasoline-powered vehicle was only $48,334. Over the past few years, many people have felt the pain of rising car prices due to high inflation and supply chain issues. However, electric cars cost an average of $5,135 more than conventional cars.
• EVs cost more to repair. If your EV gets into a crash, it costs more to get it out of the body shop. EVs often have specialized parts that cost more than regular car parts, and not all mechanics are certified to repair EVs, which can drive up costs.
• EV batteries are expensive to replace. The most important part of an electric vehicle is the battery. If your EV battery gets damaged, even a relatively harmless-looking fender bender can cost $5,000-$15,000 to replace. A damaged battery can completely ruin your EV, even if the rest of the car looks fine. All of this means that car insurance companies will have to charge extra for EV insurance to cover this risk of loss.

For all these reasons, be prepared to pay extra for insurance for your electric car.

Depending on where you live, purchasing an electric vehicle may incur several additional fees, taxes, and costs to your personal finances. Some states impose additional taxes, registration fees, or road usage fees on EV owners in lieu of gasoline taxes (which EV owners do not have to pay because they do not purchase gasoline).

For example, in my home state of Iowa, EV owners must pay an additional $130 annual fee as part of their vehicle registration renewal. Iowa also imposes an alternative fuel tax of $0.026 per kilowatt-hour when charging EVs at charging stations.

Ideally, these additional fees and taxes won’t drain your bank account. And it shouldn’t make a big enough difference to cancel out the savings in gas costs (and the maintenance savings that come with owning an EV). However, it’s important to realize that there are additional costs to being an electric vehicle owner, along with the nice EV tax credit.

gist: Buying an EV can help you save a significant amount of money on gasoline and car maintenance, but don’t assume that an electric vehicle will automatically be a “win” for your personal finances. Owning an electric vehicle comes with several additional costs, fees, and taxes. Make sure you understand the cost of EV car insurance before shopping for an electric vehicle to avoid buyer’s remorse.

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