3 Most Common Mistakes in Calculating EV Costs and How to Avoid Them

Many Americans are thinking about buying an EV in 2024. And it might be a good time to buy: EV prices are getting cheaper, and there are generous federal EV tax credits of up to $7,500 when you buy an electric vehicle.

However, before getting your heart set on a new electric vehicle, it's important to understand the total cost of EV ownership. There are a few misunderstandings and mistaken assumptions that people tend to have about what it really takes to afford all the costs of buying an EV.

Let's look at the most common mistakes when calculating EV costs and see how much money an EV can really help you save.

Mistake No. 1: Assuming that EV fuel costs will be "zero"

It's true that electric vehicles don't burn gas. But that doesn't mean EV fuel costs are $0. You still have to pay some money to cover the costs of the electricity to fuel your car, whether that's a higher monthly electric bill from plugging in the car to your house, or the costs of using public charging stations. (Some charging stations are free, but you can often get faster charging by paying a fee.)

If you're charging your EV at home, it's not "free" -- it's adding to your total monthly electric bill. For example, according to data from Kelley Blue Book, if you drive the average miles per month and pay the average U.S. price for electricity, it will probably cost about $60 per month to charge your EV at home. However, when you compare that cost of charging an EV to the average amount of money that Americans spend on gas each year, the EV savings become clear.

According to research from The Ascent, the average American spends $2,148 on gas annually, or $179 per month. What if you could replace all of that spending on gas with $60 per month on recharging your EV? In that case, buying an EV could help you save $119 per month on fuel costs -- or $1,428 per year.

The lesson is: Buying an EV won't save you every single dollar that you used to spend on gas. But the savings are still significant!

Mistake No. 2: Thinking that EV car insurance is cheaper

Another big cost of owning an EV is car insurance. Unfortunately, unless you buy the smallest, cheapest EV on the market, your cost of car insurance for an EV is likely to be higher than you would pay for a similar-size gas-powered car.

Here are a few reasons why EV car insurance is more expensive:

• EVs are more expensive: The higher the price of a car, the higher the price of car insurance -- and electric vehicles are more expensive than gas-burning cars. According to Kelley Blue Book research, as of July 2023, the average sale price of an electric vehicle was $53,469, and the average gas-powered vehicle was only $48,334. In the past few years of high inflation and supply chain problems, many people have felt the pain of rising prices for cars. But electric vehicles are even more expensive: $5,135 more, on average, than conventional cars.
• EVs cost more to repair: In case your EV gets in a crash, it's going to cost more money to get it out of the body shop. EVs often have special parts that are more expensive than conventional auto parts, and not every mechanic is certified in EV repairs, which can drive up costs.
• EV batteries are expensive to replace: The most important part of an EV is the battery. If your EV battery gets damaged, even in a relatively harmless-looking fender bender, it can cost $5,000-$15,000 to replace. Damage to the battery can even cause your EV to get totaled, even if the rest of the vehicle looks fine. All of this means that car insurance companies have to charge extra for EV insurance to cover the risk of those losses.

For all these reasons, be prepared to pay extra for insurance on your electric vehicle.

Mistake No. 3: Forgetting about the extra costs of EV ownership

Buying an electric vehicle, depending on where you live, will bring a few extra fees, taxes, and costs into your personal finances. Some states charge extra taxes, registration fees, or road usage fees to EV owners, instead of the gas tax (which EV owners don't have to pay, because they never buy gas).

For example, in my home state of Iowa, EV owners have to pay an extra $130 annual fee as part of renewing their vehicle registrations. The state of Iowa also charges an alternative fuel tax of $0.026 per kilowatt-hour for charging an EV at charging stations.

These extra fees and taxes won't drain your bank account, ideally. And they shouldn't make a big enough difference to undo the savings you get on gas (and on the lower maintenance costs of owning an EV). But it's important to be aware that there are some extra costs of being an electric vehicle owner, along with those sweet EV tax credits.

Bottom line: Buying an EV can help you save significant money on gas and car maintenance, but don't assume that an electric vehicle will be an automatic "win" for your personal finances. There are some extra costs, fees, and taxes involved with owning an electric vehicle. To avoid buyer's remorse, make sure you understand the cost of EV car insurance before you go shopping for electric vehicles.