With few exceptions, it’s true that gas-electric hybrids cost more than conventional internal combustion vehicles. That makes many wonder if buying one of these high efficiency vehicles is worth the extra cost and, importantly, if the difference can be offset over time – the hybrid payoff – from buying less fuel.
While plenty of generalizations have been made about this in recent years, the concept of payback for a hybrid’s incremental cost involves many variables and can only be answered on a case-by-case basis. Green Car Journal’s research shows that a realistic answer is not so simple, and boiling this down into a simple chart is misleading…so we’re not going to do that. Instead, we’re going to do this the right way and help you come up with a valid payback factor for the hybrid you may be considering.
Hybrid Payoff a Moving Target
You need to know that crunching the numbers involves some elements that are moving targets. For example, higher gasoline prices work to shorten the number of miles and time needed for payback. At the same time, high gas prices are also finding many drivers putting fewer miles on their vehicles in order to save money. Fewer miles can lead to a longer payback. Plus, let us not forget that the retail price of hybrids – or really any cars these days – is also in play. Many dealers are tacking on a serious premium – sometimes thousands of dollars – onto the suggested retail price of any new vehicle because of today’s high demand and supply chain restraints.
Still, the basic equation for determining a hybrid’s breakeven point is straightforward. It begins by identifying the combined city/highway mpg number for a hybrid and that of its closest conventional counterpart. These mpg figures can be found online at fueleconomy.gov. Once armed with these numbers you can calculate each vehicle’s operating cost per mile based on current fuel prices.
Toyota RAV4 Hybrid Example
To come up with a hybrid payoff calculation, simply divide the price of fuel (such as $5.00 per gallon) by a vehicle’s combined mpg. As an illustration, a Toyota RAV4 compact SUV with a combined rating of 30 mpg would pencil out as follows, assuming the above gas cost: $5.00 ÷ 30 mpg = $0.167, (16.7 cents) per mile operating cost. If a RAV4 Hybrid with a combined average of 40 mpg is substituted, that number comes down to $0.125 (12.5 cents) per mile. So, the hybrid variant would cost $.042 (4.2 cents) less for each mile driven.
A wild card here is the type of driving you’ll be doing on a daily basis. Conventionally powered models can get considerably higher gas mileage in highway driving than in the city. On the other hand, hybrids get better city mpg than on the highway because hybrid electric power offers the biggest efficiency bump during lower speed, stop-and-go city driving. Simply, a hybrid’s electric motor and battery are doing more of the work under these driving conditions.
Highway vs. City Driving
Placing this in context, a standard RAV4 nets 27 city mpg with the hybrid coming in at 41 city mpg, a significant difference of 14 mpg. On the highway, the difference in mpg is much less. The conventional RAV4 is estimated at 35 mpg on the highway and the hybrid at 38 mpg, a mere difference of 3 mpg. Thus, if you’re doing mostly highway commuting miles then the cost differential between standard and hybrid models may not be worth the additional cost. That is, if price is your primary motivator and not environmental impact. We’ll stick with EPA’s combined city/highway mpg figures to keep things simple.
Next, determine the manufacturer’s suggested retail price (MSRP) for the models you’re comparing. The RAV4 has an MSRP of $26,975 while the RAV4 Hybrid is $29,575. To find the projected mileage to a breakeven point – where the increased fuel efficiency offsets the extra cost of a hybrid – start by calculating the difference in price between the hybrid model and an identical conventionally powered model.
Beyond the Basics
If all this sounds simple, rest assured it’s not. Finding direct hybrid/gasoline model comparisons can be tricky since some features that come standard on hybrid models may only come as additional cost options on their gasoline powered counterparts. Auto manufacturers often sweeten the deal on hybrids with additional content to soften a hybrid’s higher price. These extra features cost the manufacturer much less than the added retail value they bring to the consumer, so this content serves to take some of the sting out of the additional money being paid for more expensive hybrid technology.
The challenge in identifying a direct hybrid comparison is illustrated by the Toyota RAV4. Exploring the various engine and trim levels available for the non-hybrid model shows that none offer the exact mix of options and components as the hybrid model.
Additional Hybrid Payoff Variables
Still other factors cloud the issue. Beyond the typical daily use mentioned – mostly city driving versus highway commuting – driving habits can influence the payback equation. If you drive conservatively with fuel economy in mind, fuel efficiency can sometimes vary by as much as 5 mpg either way, regardless of whether your vehicle has a conventional or hybrid powerplant. And remember our mention of dealers currently adding premium pricing? A check at our local Toyota dealer showed $3,000 being added to the base cost of a standard RAV4 and $5,000 to the base cost of a RAV4 Hybrid. That, of course, skews the math for a payback analysis. Again, to keep things straightforward, we’re using the manufacturer’s suggested retail price for these two models without markup. That said, the hybrid payoff calculation can be easily adjusted to reflect the actual sales cost of the conventional and hybrid models you’re considering in real time.
So here’s the math: The differential between the MSRP for the conventional and hybrid RAV4 models is $2,600. At a savings of $.042 (4.2 cents) per mile, this differential cost would be recaptured in some 61,904 miles of driving the RAV4 Hybrid. How long will that take? Again, there are variables. But according to the Federal Highway Administration, figuring the national average of 14,000 miles yearly, this means the payoff would arrive in just under 4 1/2 years (61,904 miles ÷ 14,000 miles = 4.42 years).
How Long Will It Take?
Keep in mind that the actual length of time to reach this payoff point may be influenced by the state in which you live, lifestyle, your work/transportation circumstances, and the proliferation of public transportation options. As an example, wide-open states like Wyoming find drivers traveling the most annual miles, at an average of just over 24,000 miles yearly. Other states like New York and Rhode Island see drivers behind the wheel far less, at about 10,000 miles annually, more or less. In the case of the former, the hybrid payoff could arrive in under 3 years. In the latter case, payoff would take just over 6 years.
A major consideration when shopping for a new hybrid is the length of time you plan to keep it. If you’re a short-term buyer, then the math to breakeven can be harder to achieve. The big variable here is the resale or residual value when you sell the car or, if a lease, when it’s time to turn it in. A hybrid may well retain much of the value of the premium you pay due to high demand, particularly if you sell it or trade it in after only a few years. That’s because of today’s significantly higher value for used cars, a reflection of the high demand/low inventory automotive market these days. This could work in your favor even if you lease a hybrid, since a high residual value often means you can buy your vehicle at end-of-lease rather than just turn it in. Then you can sell it, or trade it in, at a profit. A high value at the end of your purchase or lease term can effectively reduce the time or miles to hit breakeven.
Battery Replacement Cost
We’re not factoring in the eventual cost of a hybrid’s battery replacement because our focus is on acquiring a new hybrid model. Frankly, most buyers aren’t likely to keep their new hybrid long enough for battery replacement to be an issue. Manufacturers offer a federally mandated minimum 8 year/100,000 mile battery warranty for their hybrids so replacement in a new hybrid model is expected to be quite a ways down the road. Of course, the case is different for those buying a used hybrid because battery packs will eventually need to be replaced, at a likely cost of thousands of dollars, depending on model.
When will a hybrid pay for itself? We like to think the day you drive the vehicle off the lot. In hard numbers using our straightforward formula, though, you can figure it out yourself and come up with an approximation that fits your particular circumstances.
Being an adopter of environmentally positive technology, reducing oil dependency, and creating less pollution and greenhouse gas emissions has its own rewards. The substantial savings realized at the pump every time a new hybrid is filled up provides real and immediate financial gain. All things considered, the answer to those questioning whether a hybrid will pay off seems pretty clear.