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Would an Electric Vehicle Help You Save Money?

There are a number of reasons consumers might consider purchasing an electric vehicle. From the reduced environmental impact to government incentives. With that said, will purchasing an electric car actually save you any money?

Rising fuel prices and government incentives have motivated Indian car owners to look at electric vehicles as a cost-effective substitute. For example India's government is pushing for electric vehicles by offering subsidies and tax exemptions. For example, the government targets a 30% conversion to electric cars by 2030, up from about 1% at present. Rising petrol and diesel prices are also motivating car owners to consider the option of changing to hybrid and electric cars. According to a recent survey, 90% of car owners in cities are willing to switch to electric cars and 31% are ready to use them as their primary mode of transport.

Additionally, fuel prices have steadily risen, which has enticed many switch from cars with internal combustion engines to electric ones that offers much lower operating costs. While electric cars have garnered more popularity due to their fuel efficiency and associated rebates, many buyers may not have actually estimated the total savings one can get from buying an EV instead of a petrol vehicle. Therefore, our team decided to dig into the data to determine whether consumers stand to save with these cars.

Electric Vehicles in India

In 2018-19, the total number of electric vehicles sold stood at 7,59,600. E-three wheelers led the list with 83% of total sales and e-two wheelers were 16.4%. At 3,600 units, electric passenger vehicles were less than 1%. But considering a three-fold jump compared to just 1,200 units sold in 2017-18, it looks encouraging. As a proactive measure to encourage the nascent industry, the Government of India has ordered 3,000 electric vehicles for its own use and slashed the GST on electric cars to 5% compared to 18% to 28% on petrol and diesel cars.

E-Vehicle Sales in IndiaFY 2018FY 2019
E-2 Wheeler54,8001,26,000
E-3 WheelerN/A6,30,000
E-Cars1,2003,600
Source: Autocar India

How Much More Do Electric Vehicles Cost?

Following ₹ 10,000 cr allocation in 2019 budget and incentives announced under the second phase of Faster Adoption and Manufacturing of Hybrid and Electric vehicles (FAME) scheme, sales are expected to pick up. To make electric and hybrid cars affordable, the government offers ₹150,000 as income tax relaxation on the interest to be paid on loans taken to buy such cars. Still, hybrid and e-cars available in India carry a much higher price tag. As shown in the chart below, electric and hybrid vehicles can cost more than twice than comparable petrol and diesel models.

Purchase Price of Electric Vehicles & Comparable Diesel/Petrol Models

No Long-Term Cost Savings Either

Clearly hybrid and electric vehicles are more expensive than similar petrol and diesel cars in the short-term, but how do the costs compare in the long run? First, the State Bank of India provides auto loans for electric vehicle at 20 basis points less than the rate of interest charged for cars with internal combustion engines. Furthermore,the operating cost of electric vehicles is a fraction of their diesel and petrol counterparts. For example, we estimate that the Tata Tigor Electric will cost about 25% of the Tata Tigor petrol and diesel models, annually.

Estimated Total 10-Year Fuel Costs

However, our research suggests that despite lower operational costs, electric vehicles offer no cost savings after a 10-year period. For example, while the Tata Tigor and Mahndra E-Verito approach breakeven with comparable petrol and diesel cars after 10 years, the Hyundai Kona E-SUV and Toyota Prius Hybrid aren't even close. These price discrepancies are driven the high purchase price differential between e-cars and traditional vehicles.

Total 10-Year Estimated Cost of Car Ownership

High Cost of Acquisition May Deter Adoption

Additionally, the buying price may be a significant deterrent for cost-conscious Indian consumers. At present, over 55% of cars sold in India are small or midsize cars with a price tag of less than ₹700,000 and most consumers consider the purchasing price a definite criterion to select a vehicle. Furthermore, the subsidy offered by the government is restricted to e-two wheelers, e-three wheelers, and commercial e-cars. Those buying electric or hybrid cars for personal use have no direct incentive though they can claim up to ₹150,000 income tax relaxation only on the interest paid on the loans taken to buy electric cars.

There may be some hope for the future of e-cars, as a survey, are ready to only pay a premium of about 17 per cent more than petrol and diesel cars to buy a hybrid and electric cars. Interestingly, prices of electric and hybrid vehicles recently

Are Hybrid and Electric Cars Are Really Worth It?

Given the environmental perspective and concerns over climate change, hybrid and electric cars offer a hopeful alternative to petrol and diesel cars. However, at current prices, electric vehicles are not yet price competitive. It is worth noting that there are currently very few options for consumers seeking electric vehicles. Perhaps with more market competition and continued government incentives, e-vehicles will become a great way for drivers to save at least some money, as we have seen in other countries, such as Singapore. For those that want to save on driving costs without switching to an electric car, it's worth choosing a credit card with fuel-related rewards. For example, the best cards offer up to 5% back on fuel purchases, net of fuel surcharges, which can result in significant savings for frequent drivers.