Is the Chevy Volt’s payback period really 26 years?

The Chevy Volt is much more affordable if you strip it of a few options. (Photo by Wired via Creative Commons)

An article in today’s New York Times looks at different types of hybrid and fuel-efficient cars, arguing that many buyers opting for the more efficient models may take years to see any actual savings.

The article comes with a handy chart, using data from TrueCar. The chart compares the price differences between comparable conventional and hybrid cars, and using a figure of $3.85 per gallon and 15,000 miles driver per year, estimates the number of years it would take to recover the cost difference in gas savings (assuming the price of gas never goes up or down).

For most of the cars TrueCar looks at, the break-even point is ten years or less, well within the typical lifespan of most new cars. But there are two outliers – the Ford Fiesta vs. the Fiesta SFE and the Chevy Volt vs. the Chevy Cruze, both with payback periods in excess of – are you ready? – 26 years.

At this point, if you’re Rush Limbaugh, you’ll be rushing off to the microphone to declare the Volt a waste of money. The rest of you may be wondering if that number is really accurate.

The missing mpg figure

The figures for the Fiesta are pretty clear (and trivial, the cost difference is only a few hundred dollars), but for the Volt, we’re left with a mysterious dash where there ought to be a data point – the assumed mpg.

Working backwards using a spreadsheet, I found that the missing number is 46.7 – that would be the mpg equivalent you would have to achieve with a Volt in order to reach a payback period of 26 years. That seems a tad pessimistic, considering the EPA rates the car at 93 mpg equivalent in electric mode and 37 mpg running on gasoline.

The problem with pinning down a mileage figure for the Volt is that it depends entirely on how much you drive in electric mode. A person driving fewer than 35 miles per day (the Volt’s approximate range on battery power) would theoretically never have to buy gas at all. Some Volt owners have reported average mileage in excess of 1,000 mpg, and figures reported by a handful of Volt owners on fuelly.com run from a low of 77 mpg to as high as 168 mpg.

But wait! You can’t just make estimates based on the cost of gasoline burned – electricity costs money, too.

The EPA says the Volt can go 100 miles on 36 kWh, and for simplicity’s sake, lets assume a cost of 10 cents per kWh. So at 37 mpg (in gasoline mode) with gas at $3.85, the Volt costs about 10 cents per mile to drive on gasoline, versus 3.6 cents per mile on electricity.

Still with me?

Your mileage will vary

To get to that 26-year payback figure, we’d have to assume the Volt was driven 11,000 miles in gasoline mode, but only 4,000 miles in electric mode. Assuming the car exhausts its battery on each trip in order for gasoline mode to kick in, that would mean the car was only driven 114 times each year for an average of 131 miles of driving each day. That’s not very typical driving behavior, unless you’re a part-time pizza delivery driver.

So let’s assume the car is charged and driven every single day. Over a year, that works out to 41 miles per day, 35 in electric mode, 6 in gasoline mode. Again using the spreadsheet, that puts our payback at 11.8 years.

Or, we can assume the car is only driven on weekdays. That means 57.7 miles per day (35 in electric mode and 22.7 in gasoline mode). That would put the payback period closer to 15 years.

And, just for kicks, if you drove the car in electric mode 100% of the time, the payback would be around 10 years – more in line with the other cars in the Times’ comparison.

Now, that’s still a long time, but it’s also based on some other unlikely assumptions – such as, the price of gasoline remaining below $4 for the next decade (anyone willing to wager on that?).

A recent analysis by Edmunds pegged the Volt vs. Cruze payback period at 15 years with gas at $3 per gallon, and 9 years with gas at $5 per gallon, though those numbers seem to have been reached simply by comparing EPA mileage figures.

The bottom line is that the Volt is a different beast, whether it’s a smart financial decision will vary dramatically depending on an individual’s driving habits. In fairness, the Times does make this distinction deep in the text of the story, but no such nuance can be found in the accompanying graphic.

The 26-year payback period that the Times is reporting is based on a pretty unlikely scenario, and should be taken with a grain of salt.

10 thoughts on “Is the Chevy Volt’s payback period really 26 years?

  1. Well done. There are also significant other maintenance cost savings from an electric vehicle (no oil changes, fewer moving parts to fix, etc.). Including maintenance savings, I’ve seen reputable estimates of 6-10 year payback depending on gas prices.

    Although, admittedly, the life of the battery (and potential need to replace it) is a bit of a wild card. Plus, we don’t know what batteries will cost in 10 years or what the resale value of a used Volt battery will be.

    Regardless, 26 years is ridiculous.

  2. Great analysis. Just what we needed to make sense of this issue, which has now become highly politicized.

  3. @ Ethan
    The Volt would still require oil changes, although not as often.

    Volt owners know the car’s limitations, and buy it with their driving ranges in mind. I drive under 40 miles per day everyday, have a surplus from my PV system so at that point my driving is almost free.

    For someone driving 75 miles a day, the volt might not be the most efficient option, but then you just make an informed decision. The problem is with stupid “journalists” who are pushing an agenda and making the water murky for the rest of us.

  4. A few more points.

    The chart that you show sets the price of the Volt at about $31,767. But that is only after rebates. The base MSRP for the Volt is $39,145 (Mototrend, 2012). So about $7,500 have been shifted to other people (taxpayers). This makes all the difference in the world. So while driving a Volt may be cost effective for the owner, it might not be cost effective for society.

    One of the reasons that the government provides these incentives is that the Volt should reduce CO2 emissions. But even that is a stretch.

    When running on gasoline the Volt will emit about 0.39 lbs of CO2 per mile. When running on grid charged electricity it will average 0.37 lbs of CO2 per mile. But if you live in a region where the electicity is primarily generated from coal, then the Volt will yield 0.54 lbs of CO2 per mile.

    Compare this to an ’87 Honda Civic Coupe HF, which would yield only 0.34 lbs of CO2 per mile (running on gasoline, of course).

    You can see the details of these calculations here…
    http://climatesanity.wordpress.com/2009/08/20/i-was-partially-wrong/

  5. The equation changes substantially if you do exclusively city driving. The figure given for the Cruze is the mixed number. I, on the other hand, commute 20 miles roundtrip each day in hardcore city driving conditions; stoplights, traffic, and lots of stop-and-go. In C&D’s Volt vs Cruze Eco comparison test, they got a city mpg figure of 20 for the Cruze.

    Even at $4 gas, this reduces the payback period to 8.6 years. If my commute was the 35 mile EV sweet spot, payback period would be 5.2 years.

  6. @Tom:
    “So about $7,500 have been shifted to other people (taxpayers). So while driving a Volt may be cost effective for the owner, it might not be cost effective for society.”

    Total subsidies given to Volt owners (2011-12): $90M
    Total subsidies given to the Oil industry (2011): $4,000M

    Interesting how people get so worked up over a relatively minuscule car incentive, while letting $4 billion in industry subsidies slide.

  7. @Matty.. Assuming those subsidy figures are correct (I haven’t checked but lets roll with them)there are some factors missing.

    1. # of volts (2289 for march 2012 (noted as volts best month) vs number of gas cars which a cursory search found chevy alone sold 1.8 million in first quarter of 2012.

    The market share of volt is next to 0 which makes that 90 million quite huge alone and.. in just the car market eclipsing oil subsidies percentages by a gargantuan amount. (ya more research and more math needed for precision but unmissable fact at even a glance)

    2. Oil production has many other effects on the economy besides just automobiles alone. Dollar for dollar if done fairly this makes oil subsidy’s much more profitable to the overall economy than subsidy’s related to auto’s alone. And yes i’m aware of lobby effects on fairness but lay a bet it’s still true, and obviously green energy lobbies also for this to have occurred.

    Beyond the economics,I’ve read the environmental impact of the batteries have u looking at well into the 100,000 mile range to pay off. I know this is fairly complex to analyze and maybe some give or take there (I don’t have the source) but the batteries are clearly a limiting factor.

    That said i am a huge fan of finding a more economical, environmentally friendly non fossil fuel energy and applaud reasonable efforts in that direction.

    The volt however is really none of these yet and I would hope the general welfare is not overly burdened by what is at best just a stepping stone to these ends.

    I have to give a thumbs down in this category to any politician supporting this much of “everyone else’s money” to this project…for it is clearly just a project..not near a viable product for the needs it’s claimed to address.