Price is what you pay, value is what you get

by Ernie Hernandez on March 16, 2012

Dollar SignDoes Warren Buffett’s quote apply to the LEAF?

Many electric vehicle (EV) naysayers trot out the price difference between a Nissan LEAF and a Nissan Versa, which are similarly sized and shaped but built on different platforms. The argument is stated thusly: “Why should I fork out almost $40,000 for an electric car with a limited range when I can get a Versa Hatchback for $15,000? $25,000 buys a lot of gas!” We are about to take a closer look at that argument.

Let’s start with the LEAF. The 2012 Nissan LEAF has a Manufacturer’s Suggested Retail Price (MSRP) of $35,200 for the entry level SV trim level. With the federal tax credit of $7,500, the price is effectively reduced to $27,700. This is the first hit to that $25,000 price differential between these two vehicles. In addition, the states of California, Georgia, Hawaii, Illinois, Louisiana, Maryland, Texas and Utah provide additional tax incentives and/or rebates up to $5,000. Many other states offer reduced registration or licensing fees. But we must also take a look at standard equipment found on the LEAF. First up is the LEAF navigation system which is accompanied by other comfort and convenience features. Standard for 2012 model year LEAFs are heated front and rear seats, a heated steering wheel, Bluetooth telephone connection and wireless streaming audio along with 16 inch aluminum alloy wheels. In addition there is a standard USB audio connection for portable audio devices, push button start and Nissan’s Intelligent Key and automatic temperature control heating and air conditioning system. For competent stopping, the LEAF is equipped with four-wheel disc brakes. So let’s see how the Versa compares.

To get close to the equipment level on the entry level SV LEAF, one must step up to the top trim Versa SL which starts at $18,490. To get a little closer to the LEAF in features requires the addition of the optional $700 navigation system. It also has front disc and rear drum brakes. While it does include the Intelligent Key it does not include push button start. The air conditioning system is also not of the set it and forget it type, such as that found on the LEAF. So even with the addition of some optional features, the Versa at $19,190 MSRP does not provide the same level of equipment as the LEAF. But we are still $8,510 to the good by buying the Versa. This is where it gets a little more interesting – cost of operation.

There is no such thing as normal. Every situation is different. But for the sake of this illustration some assumptions must be made, so these are the assumptions that we will make. Both vehicles are driven 13,476 miles per year, the average as determined by the Department of Transportation. The current cost of regular gasoline is $3.80, the nationwide average as reported by GasBuddy.com. And the current cost of electricity is $0.118 per kilowatt hour, the national average price as determined by the Energy Information Administration (EIA) for the rolling 12 months ended in December 2011. A couple of other assumptions need to be made. The cost of gasoline and electricity will both rise. Based on ten years worth of history, the price of residential electricity will rise about 22 percent over the next five years. The price of gasoline however will rise about 60 percent over the next five years. This differential is rarely accounted for in most calculations.

The Versa would use roughly 450 gallons of regular gasoline each year at a combined 30 miles per gallon. We’re going to simplify the math and just calculate yearly price increases. Year one – $3.80 per gallon. Year two – $4.26, year three – $4.77, year four – $5.34, year five – $5.98. These price gains approximate the price changes seen over the past ten years on an annual basis. So the cost of gasoline for the Versa would be $1,710, $1,917, $2,147, $2,403 and $2,691 for a grand total of $10,868 spent on gasoline.

The LEAF (we’ll leave out the math this time if that’s okay with you) will cost $3,012 in electricity over the next five years if electricity rates rise at the same rate as the past ten years. The difference in fuel cost alone will amount to $7,856 over the next five years. So now the Versa has just a $654 advantage. Over those same five years though the Versa will require oil and filter changes and other maintenance that the Versa will not.

Keep in mind also that the Versa is giving up some features to the LEAF – such as the navigation system, four wheel disc brakes and streaming Bluetooth audio capability, along with such niceties as the push button start and auto climate control.

As you can see, this decision is never as simple as it seems. Other unknowns include the future value of the LEAF. So far, the value seems to be holding up well if autotrader.com is any indication. But as Mr. Buffet says – value isn’t just about what you pay for something, it also must consider what you are getting in return. Some of the LEAF returns can’t be measured in financial terms and that may be where you end of making your final decision.

{ 2 comments… read them below or add one }

Kelly Downey March 17, 2012 at 9:12 am

Great comparison Ernie. People who are on PV systems will make the comparison even more in the favor of the Leaf. Yes there are costs to having a PV system but normal electrical savings make up this difference.
One problem with one of your assumptions is the $7500 Federal Credit. Unless you lease, not everyone will realize the full $7500 credit. Unlike the PV credit, the EV credit can’t be used in more than one tax year. I have not gotten back my return from CPA yet, but it does not appear that I will get back the full $7500.
This would be a problem with the majority of people who might like to buy an EV. Not everyone is going to qualify for the full credit. So unless this credit turns into a rebate or it is allowed to be used in two or more tax years, I do not see how full implementation of EVs will ever take off.
Aloha, Kelly

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Ernie Hernandez (LEAFguy) March 17, 2012 at 6:10 pm

Hi Kelly, thanks for your comments. I almost did not write this article as all of the “What about…” issues can not possibly be addressed. While some individuals may not be able to use the entire $7,500 federal income tax credit, if the LEAF is leased the entire amount can be. That raises the issue of leasing vs. buying. For some, leasing the car for three years just to take advantage of the entire credit may make financial sense. Also, your fair state offers an EV rebate program that was just extended through November which offers a $4,500 rebate on the EV and $500 on the charging equipment. Many states have no vehicle rebate but may offer other incentive forms. Also, someone will argue that I should have used a hybrid as a comparison vehicle. And as you pointed out, those with residential solar installations have yet another factor to consider. In the end, I chose to present the article that I did to remind our readers that there is much to be considered in their EV acquisition decision – including the ever increasing price of fuel and its impact on cost of ownership. Ones own situation will always determine the best course of action.

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