LIFECYCLE COST – WILL THEY OFFSET HIGHER PURCHASE PRICES?

Although vehicle purchasers may tend to focus on initial purchase price more than on operating and maintenance (O&M) costs and expected vehicle longevity in their purchase decisions, large reductions in O&M costs and longer lifespans may offset purchase price advantages in vehicle purchase decisions.

For example, diesel-powered vehicles typically cost more than the same model with a gasoline engine, and often are less powerful, but are purchased by shoppers who respect their reputation for longevity, low maintenance, and better fuel economy, or who are swayed by diesel fuel’s price advantage (in most European nations), or both.

Best prices vehicles

Proponents of advanced vehicle technologies, especially EVs and fuel cell EVs, often cite their claimed sharp advantages in fuel 17 costs, powertrain longevity, and maintenance costs as sufficient economic reasons to purchase them—aside from their societal advantages.54 A few simple calculations show how a substantially higher vehicle purchase price may indeed be offset by lower O&M costs or longer vehicle lifetime. Assuming a 10 percent interest rate and 10-year vehicle lifetime.

For example, a $1,000 increase in purchase price would be offset by a $169 per year reduction in O&M costs. Since average annual maintenance costs for gasoline vehicles are $100 for scheduled maintenance and $400 for unscheduled maintenance over the first 10 years of vehicle life, 55 there is potentially a substantial purchase price offset if advanced vehicles can achieve very low maintenance costs.

Reasons for popularity

Similarly, an increase in vehicle price of about 25 percent—for example, from $20,000 to $25,000-would be offset by an increase in longevity of 5 years, assuming the less expensive vehicle would last 10 years. 56 OTA’s evaluation of lifecycle costs leads to the conclusion that their influence will offset sharply higher purchase prices only under limited conditions.

For example, unless gasoline prices increase substantially over time, any energy savings associated with lower fuel use or a shift to electricity will provide only a moderate offset against high purchase price-primarily because annual fuel costs are not high in efficient conventional vehicles. In the mid-size vehicles OTA examined for 2015, for $1.50 a gallon gasoline, the minimum savings (NiMH EV versus baseline vehicle, savings of about $400 per year—see table 1-3) would offset about $2,300 in higher purchase price for the NiMH EV.

Concluding Remarks:

In contrast, the EV may cost as much as $10,000 more than the baseline vehicle. Moreover, 51 percent of the fuel cost savings could be obtained by purchasing the 53 mpg advanced conventional vehicle, which costs only $1,500 more than the baseline vehicle.