Electric vehicle sticker shock? Why these cars offer a good return on investment

Electric vehicle sticker shock? Why these cars offer a good return on investment

Last week, the Ontario Government announced the public and private sector partners who received funding from the $20 million Electric Vehicle Chargers Ontario grant program. Program recipients are responsible for implementing additional electric vehicle (EV) charging stations across the province.

This funding package is part of Ontario’s $325 million Green Investment Fund meant to move the province toward a low-carbon economy.The Institute’s 25th Working Paper, Toward a low-carbon economy: The costs and benefits of cap-and-trade, recommended the adoption of EVs as an essential policy initiative needed for the low-carbon transition. With construction on nearly 500 additional charging stations beginning shortly, we explore the benefits and challenges to adopting EVs in Ontario.

EVs in Ontario are a low-carbon alternative to gas-powered cars

An EV is any automobile fully or partially powered by electricity rather than gasoline. Within Ontario, the majority of electricity is generated by nuclear power, a clean energy source that does not emit carbon dioxide. As the transportation sector currently accounts for more than 30 percent of carbon dioxide emissions within Ontario, replacing gas-powered vehicles with EVs is a way to decarbonize Ontario’s economy. Indeed, driving an EV can reduce one’s car-related carbon footprint by as much as 90 percent a year.      

EV ownership is essentially a chicken and egg issue. Consumers are reluctant to purchase EVs without the appropriate EV infrastructure, yet investment into this infrastructure is incentivized by stronger EV sales. Nonetheless, EVs offer a feasible way to move Ontario toward a low-carbon future, as they are largely powered by clean energy sources and thus do not emit greenhouse gasses. Promoting EVs today will not only lead to their further adoption in the future, but also contribute to a low-carbon Ontario.

EV adoption can reduce Ontario’s dependence on imported oil

EV adoption can strengthen Ontario’s economy by reducing the province’s dependence on imported oil, whose price is subject to international price shocks. Furthermore, as more cars move away from gas toward electric power, demand for oil will fall and demand for electricity will rise. Ontario generates electricity within province, and so this increased demand for electricity can also create jobs for Ontarians.  

However, to incentivize the move toward the purchase and use of EVs, range anxiety or the worry that an EV will run out of power before a charging station can be reached, must be addressed. The typical EV can travel only 100 km to 150 km before its battery becomes depleted. After this point and depending on the type of EV, the battery must either be recharged or the car must switch over to a gas-powered engine to go any further. Additionally, unlike gas stations, EV charging stations are not readily available across the province, though the construction of new charging stations is underway. Consumers will be more likely to purchase EVs if they can easily charge their cars along their journey or at their destination. 

The increased availability of charging stations funded by the Ontario Government is a good start. However, these stations must also be designed in such a way so as to promote easy charging. EV charging stations located in corner parking spots and near store entrances may appear desirable to EV drivers because of their central location, but this layout only allows one car to be charged at a time. A more efficient layout would be an octopus charging station, placed in the middle of a parking lot with multiple cables so that several cars can be charged at once, or sequentially depending on the amount of charge a given station supplies. This octopus layout has been recommended by Environmental Management Professors at Harvard University as a way to increase the availability of charging spots for EVs.   

Consumer cost perception is a barrier to EV adoption

A barrier to increased adoption of EVs is consumer cost perception. The listed price of an EV is relatively higher than that of a gas-powered car, leading consumers to perceive EVs as more costly.  For example, a base model, gas-powered 2015 Ford Focus is $16,799 while a Ford Focus EV is $31,999. Accounting for government rebates, this price falls to $22,399. 

Despite the higher sticker price, a vehicle’s true cost efficiency is determined by the total cost of ownership, which includes both the purchase price and both maintenance and operating costs. The total cost of EVs relative to that of gas-powered vehicles falls with the distance driven, as EVs have lower operating costs. In the case of the Ford Focus, the energy cost of the gas-powered Ford Focus is $0.09/km. Once Ontario’s cap-and-trade program on carbon is introduced, this energy cost will become even greater. In contrast, a Ford Focus EV has energy costs of only $0.04/km.

Further, the maintenance costs of EVs are much lower than gas-powered vehicles, being approximately $0.025/km compared to $0.038/km. An EV becomes more cost efficient than a gas-powered vehicle after approximately 89,600 km of driving, or three to four years of ownership. 

To overcome consumers’ perception of EVs being a costly alternative to gas-powered vehicles, it may be useful to introduce cost labels on EVs available for purchase, showing the car’s average cost of ownership over one year. This will enable consumers to make knowledgeable cost comparisons between EVs and gas-powered cars when in the market for a new vehicle. 

EVs are an essential policy initiative to move Ontario toward a low-carbon economy

EVs will move Ontario toward a low-carbon economy because they are powered predominantly by clean energy sources. The additional charging stations soon to be built throughout the province will help to increase adoption of EVs in Ontario. However, adoption can be further encouraged through efficient charging station design and the promotion of EVs as a cheaper alternative to gas-powered vehicles in the long-run. Promoting the adoption of EVs today will lead to a less polluted and more productive Ontario tomorrow.  

Photo Credit: RGBAlpha, Getty Images

Category: Environment, Infrastructure