Before buying an EV, consider these hidden costs of ownership

Growth trajectory of electric cars

Kelley Blue Book parent Cox Automotive forecasts in a new report that 1 million new electric vehicles will be sold in the U.S. in 2023. That’s more than twice the volume sold in 2021.

The industry’s sales growth comes from Tesla’s
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rapid expansion and the constant launch of new electric cars into the market. Carmakers launched 33 new models this year, and more than 50 additional new or updated EVs will be launched in 2024.

What are the hidden costs of EV ownership?

We define hidden costs of electric vehicle ownership as costs you need to budget for monthly or annually when you own an EV.

In discussing any hidden costs associated with electric car ownership, we are primarily concerned with the ownership costs directly related to an EV’s electrified propulsion system. In other words, we address EV ownership costs not shouldered by ICE vehicle owners. Therefore, these are not so much hidden costs as they are costs of moving from ICE vehicles to EVs and those you might not realize or consider when calculating the cost of ownership. Expense surprises are the enemy of a monthly household budget. We aim to expose as many EV cost surprises as possible to help you create and follow a realistic budget.

PRO TIP: I’ve spent countless hours researching and studying EVs. Also, I clocked time behind the wheel of several electric vehicles. Here is one truth I’ve uncovered: The longer you keep an electric car, the better it compares to the ownership costs of a gasoline-fueled vehicle, at least on the surface. Not only does the transaction cost difference mean less as it’s spread over more time, but other electric vehicle cost advantages, like lower maintenance and energy costs, continue to pile up in the positive column for electric car ownership. However, the one significant disadvantage of EVs that is tough to overcome is the unexpected cost of accelerated depreciation. Read on.

The list of hidden costs

Purchase costs: electric vs. gas

Before digging into what may be some unknown expenses for new EV owners, we need to note the ICE transaction-price advantage briefly. On average, new electric vehicles cost more than those with internal combustion engines. According to data from Cox Automotive, the average cost of a new ICE vehicle was $48,528 in May 2023 compared with $55,488 for the average electric vehicle. That’s before factoring in any electric car government rebates or incentives. If you and the EV qualify for the full $7,500 tax credit, it could make up the cost difference. Moreover, electric car prices have tumbled steadily over the last few months — down more than $10,000 on average in the past year.

However, transaction prices aren’t the entire story. Many factors contribute to ownership costs of EVs versus ICE vehicles.

See: The cars, trucks and SUVs with the best resale value

We randomly selected two anecdotal 2023 examples: Hyundai Kona vs. Hyundai Kona Electric and Volvo XC40 vs. XC40 Recharge. Comparing the prices of the entry-level trims of both vehicles, the Kona Electric costs $11,410 more than the Kona, while the XC40 Recharge costs $17,000 more than the gasoline-fueled XC40.

Although the EV and ICE vehicle share the same trim level name for both brands, EVs typically come with more features than ICE vehicles. Consequently, it isn’t exactly an apples-to-apples comparison. To compensate for that, let’s drop both disparities by 25% to $8,558 for Kona and $12,750 for the XC40. This is our estimate of the average transaction price difference if the EV and ICE vehicles provide the same features.

Still, the bottom line is, EV transaction prices are higher than those of ICE vehicles. Consequently, you must either put more money down upfront or finance a bigger balance with higher monthly payments for the average EV over the average ICE vehicle.

Check out: Four valuable lessons I learned taking a road trip in an electric car

Charging infrastructure

If you do the research, you can probably still find some free Level 2 charging stations in government-owned parking lots and garages near you. For example, 42 free stations are in Greenville, South Carolina, area. However, you may find yourself seeking out a commercial charging station that charges by minute or kilowatt-hour (kWh). Their prices can vary wildly from station to station. Often these stations offer DC fast chargers, which can quickly replenish a battery’s charge up to 80%, but at a higher cost.

Moreover, repeated rapid charging can also damage a battery, shortening its life. (More about that below.) Currently, commercial charging stations may be in short supply depending on where you live, requiring you to not only spend the time needed to charge up your EV’s battery but also locate and drive to a remote charging station. If you’re lucky, your employer provides a few free chargers for its staff.

Home charging

Using the Level 1 charging system included with most EVs is adequate for replenishing the electricity in the battery of typical plug-in hybrid vehicles (PHEVs) because of their smaller capacity batteries. However, Level 1 charging is impractical for electric cars, which may require up to 36 hours to get the larger EV battery up to 80% plus charge. Recognizing that most EV owners charge their vehicles at home and that home charging is cheaper than commercial charging, you will quickly see the wisdom in buying a Level 2 home charger.

Learn more: What is EV, BEV, HEV, PHEV? Here’s your guide to types of electric cars

However, owning a Level 2 charger can carry a hefty price tag. Checking Amazon
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we found the spread to be from about $200 for a portable Level 2 charger to $1,000 for a permanent one. For instance, if you opt for a permanent system in your garage, you should have a professional install it. According to bobvila.com, you can spend anywhere from $400 to $3,400 on installation. The big price spread is because you need a power source of 240V (like your clothes dryer uses). The installer may need to run such a line to the appropriate location for the charge. Check for installation incentives from your state and utility company. Often, there will be some incentives to lower the cost.

PRO TIP: Before laying out the money for a Level 2 charger, ask a professional to evaluate your electrical system to determine if the 240V source is available and the costs associated with running it where you need it. Whether you pick the portable or install a Level 2 charger, you need a 240V power source.

Electricity costs

Just like the price-per-gallon costs of gas, electricity rates fluctuate. According to a March 2023 article in Forbes, electricity costs surged across the U.S. In some areas (Northeast), the prices jumped as much as 57% from January 2021 to January 2023. Forbes predicts this trend will continue. You can adopt some behavior to mitigate rising costs, like determining what time or times of day electricity costs the least in your area. Typically, it’s in the early morning. Charging then might save a few bucks.

You’ll need to employ a bit of math to calculate what it costs to charge your EV. Begin by locating your latest electric bill. You need to find the total kWh hours used and divide that number into the bottom-line total of that bill. This will give you the cost of a kWh of power.

For example, the average cost for U.S. households is 16 cents per kWh. You also need to determine how many miles, on average, you drive each month. For example, the national average per month in 2021 was 1,124 miles. Most experts agree that an electric car gets three to 4 miles of range from one kWh. We advise being conservative, using 3 miles per kWh as you create your budget. Divide your monthly mileage by three to determine the number of kWh your EV requires each month. Multiply that number by the price you pay for each kWh. The result is an approximate monthly cost for charging your EV. For example, 1,124 ÷ 3 miles of range per kWh = 375 kWh x 16 cents = $60 for the price per month to charge your electric car.

For our comparison vehicles, the government’s Environmental Protection Agency (EPA) estimates the annual cost of charging the Kona Electric at $600, while fueling the Kona costs $1,700. Charging the XC40 Recharge for a year will set you back $850. Fueling the XC40 for a year: $2,450.

See: 10 electric SUVs that seat 7

Battery degradation and replacement

We often hear the expense of replacing an EV battery as a key reason for not considering an electric car. That fear is not without merit.

Replacement costs remain historically high. For example, J.D. Power reported that the average cost of replacing the battery in a Tesla Model S, Model X, or Model three could cost at least $13,000. You can buy a 2023 Model three for about $40,240. In other words, the battery is about 30% of the total cost of the Model 3. This is not an exception. The reality is that the battery is a significant contributing factor to the price of an electric vehicle.

However, there is some good news. According to Recurrent, a company that tracks such things, most battery replacement occurs under warranty. The federal government mandates that electric vehicle battery warranties cover at least eight years or 100,000 miles. Some carmakers’ warranties cover longer periods. California requires carmaker battery warranties of 10 years or 150,000 miles. However, all warranties aren’t created equal. Some will only replace a completely failed battery, while others will replace batteries that have lost a certain percentage of their charging capacity. Furthermore, many experts say an electric car battery may last up to 20 years. GeoTab, a Toronto-based company that tracks battery health for fleets, finds that most EV batteries degrade around 2.3% per year.

PRO TIP: Read the small print in the EV battery warranty to ensure it specifies a percentage capacity reduction as cause for complete replacement during the warranty coverage period. For example, Cadillac’s EV battery warranty specifies it will replace the EV battery if it falls below 75% of its original capacity.

Degradation: As a battery ages, it will lose some of its charging capacity. Rather than charging to 100%, it will only hold up to a 90% or 80% charge. This means more time spent recharging and less range, which is an extra cost in both money and time. Temperature can also influence a battery’s capability to charge fully, and both hot and cold temperatures reduce an electric car’s range. AAA tested several EVs and found that 20-degree and 95-degree Fahrenheit temperatures reduced the range when compared with 75 degrees. In every case, cold temperatures can significantly impact charging times. The colder the battery, the longer the charging time.

Another foe of healthy batteries is DC fast chargers. Forcing electricity into a battery at an elevated volume takes a toll on the battery’s capacity. Repeated charging at a fast charger will reduce the battery’s ability to charge fully. Moreover, repeatedly filling a battery to 100% capacity will also hasten the loss of charging capacity, and carmakers recommend charging to 80% at fast chargers.

Don’t miss: The 2024 Honda Prologue: Honda’s new electric SUV is attractive and spacious. When can you get one?

Maintenance and repairs

There isn’t much to maintain in an electric car. So, this category isn’t a major concern about the hidden costs because this is an area where EV owners often save some serious cash. There are no hoses to replace, oil, or transmission fluid to change or top off. There’s no timing chain, and so forth. You get the picture. Unless they involve the electric vehicle battery system, repairs are about the same as a gasoline-only vehicle. The Hyundai Kona and Volvo XC40 provide excellent comparison vehicles for long-term maintenance and repair costs. According to Cox Automotive research, the average cost of repairs for both the ICE and EV Kona versions are the same over the first five years of ownership. On the other hand, scheduled maintenance costs are notably higher for the ICE version than the EV version of both vehicles. Here’s how the maintenance and repair costs shake out.

5-year cost-to-own repairs:

• 2023 Hyundai Kona Electric: $3,670

• 2023 Hyundai Kona: $3,670

5-year cost-to-own maintenance:

• 2023 Hyundai Kona Electric: $2,775

• 2023 Hyundai Kona: $6,054

Clearly, the Kona Electric has an advantage over the ICE version. Over five years, the maintenance cost difference totals $3,279. However, every new Hyundai provides complimentary scheduled maintenance for three years or 36,000 miles. For the average Kona owner, that means no maintenance costs for the first three years, reducing that $3,279 advantage to $2,353. Still, nothing to sneeze at, right?

For the Volvo XC40, the XC40 Recharge brings a higher cost of ownership in these categories. However, the disparity is so small as to be insignificant.

5-year cost-to-own repairs:

• 2023 Volvo XC40 Recharge: $1,727

• 2023 Volvo XC40: $1,722

5-year cost-to-own maintenance:

• 2023 Volvo XC40 Recharge: $2,364

• 2023 Volvo XC40: $2,047

Insurance premiums

No matter if your car is an electric car or a gasoline-fueled vehicle, insurance premiums continue spiraling upward. This isn’t good news, particularly for electric vehicle owners, because EV insurance tends to cost more anyway. Why? For one, on average, electric cars cost more than gasoline-fueled vehicles. We covered that earlier. In addition, although EVs don’t have as many components and parts as ICE vehicles, the ones they have are often more expensive to replace. For example, repairing or replacing a battery pack is hugely expensive. Furthermore, there aren’t nearly as many technicians qualified to repair electric vehicles as there are for ICE vehicles. As electric cars become a larger percentage of the automobile population, some of these costs will go down, but not anytime soon.

PRO TIP: I advise that you never buy or lease a vehicle without determining its impact on your insurance premiums beforehand. You don’t want an unexpected jump in your car insurance premium to be one of those budget-busting surprises. Moreover, if you haven’t shopped your auto insurance around in a while, there is no better time than when buying a new car.

Residual value

Residual value is just another measurement of depreciation. That is, value lost yearly or over a specified number of years. If a vehicle depreciates 30% over two years, its residual value is 70% at the end of those two years. To date, ICE vehicles have an advantage over EVs when evaluating depreciation. The depreciation tracking tools of Cox Automotive bear this out.

In some cases, the differences aren’t significant. However, in others, they’re huge. We believe if the gulf between the average EV price and the average ICE vehicle price continues to close, the residual value gap will also tighten. In the meantime, however, the odds are, EVs will continue to bleed value at a brisker rate than ICE vehicles. In the case of our comparison models, a much faster rate.

Further examination of our Kona vs. Kona Electric comparison shows that the Kona Electric depreciates $28,210 over five years, while the gasoline-fueled Kona depreciates $12,980. Yes, that is a difference of $15,230. That’s a huge hidden expense.

Likewise, the XC40 loses $21,939 in value over five years, while the XC40 Recharge depreciates $30,955 over the same period. That’s a depreciation advantage for the ICE XC40 of $9,016.

Experts often cite the $7,500 tax credit offered for a new EV as a compelling reason to purchase an EV. However, used EVs don’t always share the benefit of that tax break. Consequently, used EVs aren’t nearly as attractive to EV shoppers as new ones are. However, we must point out that at this moment, neither the Kona Electric nor the Volvo XC40 Recharge qualifies for the $7,500 tax credit because both are built outside the United States.

Read: five reasons you should hold off on buying an EV

Electric car range shortfall

Here’s a spoiler alert: The odds are you will never achieve an EV’s promised range estimations. For those who don’t remember, this was once a chronic issue with ICE fuel-economy estimates. Many buyers of new ICE vehicles complained of not getting the promised estimated mileage. Addressing that issue, the government tweaked its mileage-testing procedures, rendering those miles-per-gallon city-and-highway estimates much closer to real-world experiences.

Although, as an electric car owner, you may feel bamboozled by what seems to be inflated range estimations, there’s a key reason your real-world experience might be disappointing. Carmakers and the government base those estimations on the absolute best driving conditions. For example, hilly terrain, extreme temperatures, using air conditioning, aggressive acceleration, and so forth diminish range. In other words, any deviation from moderate driving behavior or ideal conditions reduces range. Towing or loading extra passengers or cargo will also drag on the range.

How are unmet range expectations a hidden cost? If you expect your EV to deliver 250 miles of range per charge and you are only experiencing 210 miles, you must recharge more often. Using the kWh formula, making up that 40-mile range shortfall will cost you, on average, 40 ÷ three x 16 cents per kWh = $2.10. That’s not a major difference, but it mounts up over time.

Also see: Your complete guide to MPGe, the electric equivalent of miles per gallon

Electric car state fees

Most states assess a tax on every gallon of gasoline pumped. In other words, you pay a per-gallon gasoline tax based on the fuel you consume. EVs don’t pay this tax because they don’t use gasoline for fuel.

Consequently, many states charge EV owners an extra annual fee to help offset the lost gas-tax revenue. These include states like California, Colorado, Illinois, Michigan, and several others. The added fees can be as much as $150 per year. Check your state’s fees to know the true cost of electric car inspection fees.

Our take

When considering the cost of ownership over five years, the bigger advantages of new electric cars are that $7,500 federal tax credit. In addition, consider that your state or utility might offer additional credits if you qualify, the lower cost of electricity versus gasoline, and, more often than not, lower maintenance costs. The greatest disadvantages are higher rates of depreciation and higher transaction prices. Taking the $7,500 out of the equation, it’s no contest: The savings in fuel and maintenance costs of EVs simply can’t overcome the higher transaction and hidden depreciation costs. Although closing the 5-year cost-to-own gap considerably, even when an EV does qualify for the $7,500 tax break, the EV is still at a disadvantage thanks to the added weight of the hidden costs of ownership.

This story originally ran on KBB.com.