Friday, October 22, 2010

Chevy Volt Financial Math


I am of course intrigued by the Chevy Volt, which is about to be introduced to a limited distribution of show-rooms next month.  For those living under a rock the last few months, here's the basic facts:
The Volt is a four-passenger, compact hatchback. While there's considerable controversy over whether or not to call it a plug-in hybrid, that's how we'll be referring to it, following the lead of the Federal government. GM prefers "extended-range electric vehicle," which is somewhat misleading, since the Volt is only an electric vehicle for the first 25-50 miles. In EV mode, the Volt's electric drive system draws power exclusively from a 16 kilowatt-hour battery pack, at all speeds up to its 100-mph maximum. Once the battery gets drawn down to 35 percent of its capacity, the Volt's gasoline engine fires up, spinning a generator to produce more electricity.
So for people with a garage to charge it in (or preferably a barn, as I hope will be my case :-), and a moderate commute, the big appeal will be that daily activities will be pretty much independent of oil, foreign or otherwise.  You'd plug in your car every night, just as you probably plug in your phone every night.  Then, as renewables are added, the climate profile of normal driving will also greatly improve.  Only long trips need be powered by gasoline (but unlike most true EVs, long trips are quite convenient).

The price of this is having a big battery and two propulsion systems and thus a heavy and expensive car ($41k, or $33.5k after a government tax rebate).

Now, personally, I sold my car before moving from CA and have been fairly happily 100% bike over the summer and fall in Ithaca (well maybe 90% bike given that I borrow my wife's car for the odd errand).  But I have been figuring that as the mercury fell, there was going to come a point where that got miserable, particularly the 6am trip to my blogging cafe which tends to take place at near the overnight low temperature.  I had been somewhat leaning to getting a VW Jetta TDI for winter use and longer errands over the next few years - till a full electric became practical.  However, now I am tempted by the Volt.

As one component of this, I was curious whether the fuel savings are likely to justify the higher up-front cost.  Obviously, this kind of analysis depends on a variety of factors that vary individually.  One is the price of electricity, which the EIA shows as follows by state as follows:


To simplify things here, I take three cases, a New York case of $0.17/kWh to represent the highest prices in the nation (except Hawaii), a California case of $0.13/kWh for a mid price case, and a mid-west case of $0.07/kWh, which seems to be where a bunch of states at the lowest end of the spectrum come in.  If you then assume $3/gallon gasoline, and an annual mileage of 15,000 miles, you get the following annual fuel costs:



You can see that, for folks like me who'd probably be over 90% driving on electricity, the fuel savings amount to something like $600-$800, a year, or $6k-$8k over a ten year vehicle life (versus a 33mpg compact with no electric drive).  So this, combined with the government incentive, mostly, but not entirely, offsets the higher initial cost.

One argument for the Volt worth mentioning here, however, is that gasoline prices have much more potential to be volatile than electricity prices.  Even if we set aside the more extreme peak-oil doomery, it's certainly not hard to imagine another mideast price shock, in a world with accelerating oil demand in the developing world and very limited spare oil production capacity.  In that scenario, given how inelastic oil demand is, prices could easily hit $6/gallon, or even $10/gallon.  Here's how the mid price California electricity case looks then:


(I've also added a $15/gallon case).  You can see that the Volt now is really excellent oil shock insurance.  If you think a year or two of oil shock prices are quite likely at some point during the next ten years, then that's probably enough to justify the initial price just on narrow financial grounds alone.

Indeed, this suggests to me that the sweetest spot for this car might really be in Europe.  Not only are Europeans somewhat more serious about climate change than Americans, but the differential between gas prices and electricity prices are much greater.  The bigger European countries have gas (petrol) prices of around $6-$7/gallon already now, but electricity of only around $0.15-$0.20/kWhr (similar to the upper end of US prices).

9 comments:

Mike Aucott said...

The Volt has its advantages. But we have to stop generating electricity from burning coal if EVs or PHVs are to put a significant dent in carbon emissions.

It sounds like you may drive considerably less than 15,000 mi/y, in which case a Volt might never pay for itself in gasoline savings. Since you're willing to go with a 4-passenger car, you might consider a mini diesel - e.g. the VW Polo, which is expected to be built in North America and which should get over 60 mpg. Maybe there's somebody in Ithaca producing biodiesel from waste grease.

kjmclark said...

While you're in town, biking in the winter isn't as bad as it sounds. It requires the same investment in clothing that you'll need to do anything athletic in the winter outside. You may need more lighting. It wouldn't hurt to get a set of studded snow tires. (www.PeterWhiteCycles.com is an excellent source.) I went for many years with regular knobbies, but decided going down on ice was so not-fun that the $100 for a pair of studded snow tires was worth it. Be particularly careful on lane lines after a frost. The rest of the road is usually fine, but the lane lines can be a sheet of ice.

Just how far into the country will your new place be? The finger lakes get a good deal of snow, don't they? Are you sure you're not going to need a pickup truck? There are reasons so many farmers have one. We tried the AWD Subaru and trailer only method until we realized we were going through brakes, rear suspension, and manual transmissions a little too fast that way.

We've found that biking to work (we don't live on our land), doing longer mileage with the car, occasionally using the trailer with the car, and using a small pickup for heavier loads is a good compromise. We can keep the car mileage to about 7k a year and not wear it out, and only use the truck about 1k a year.

KLR said...

GM, yrrkkk. The BS about "REEV," the 230 MPG, the latest reveal about how they couldn't resist weighting the thing down with a planetary gearbox. I'll wait for the early adopters to suffer, buying something PHEV from Toyota when the time comes, since they're not a nationalized company with a boardroom full of heads stuck up butts.

Why not get a NEV if you've an in-town commute? Or cook up some Redmond style carpooling system using txt msgs etc.? Lots of ways to skin that cat, and if we hit $10/gal be prepared to have your Volt or LEAF promptly jacked, too.

Oh, I see in your Personal Note post that you're out in the sticks a bit. kjm's advice about a pickup might be the way to go, depending on how much brush you think you'll be hauling etc, or how far town is and how steep the grades are; how messed up the roads are in winter/spring.

Nick G said...

The problem with the average European driver is that they put about 60% as many miles on their cars, so the payback is just as long. There might be a good niche market, though, for very high-mileage drivers, such as taxi drivers.

One nice thing about the Volt: it's dual fuel. If the power goes out (common in rural areas),you're still ok.

Have you looked into time-of-use metering? You might save with that, and night time charging.

Also, you should consider that the Volt is really a near-luxury vehice, comparable to an entry-level Lexus in comfort and driving performance. It's much nicer than the Jetta.

Finally, you might want to include the external costs of oil (my guess: $3/gallon) in your calculations. Yes, it's a bit of a charitable donation to the world, but why not, if you can afford it? It will make you feel good...

porsena said...

I'm intrigued by the Volt as well and I've had a short drive in an early one. I'd not say it was Lexus-like but it would be a valid alternative to a Jetta for a lot of people.

With Stuart headed to the country, I'd agree that a pickup makes more sense than a four-passenger car if he has to have just one vehicle. There's no pickup-equivalent to the Volt (series hybrid) close to production, as far as I'm aware, so for the short term I wouldn't know what to do. A full-size American pickup gets pretty depressing fuel economy, even when equipped with a diesel, and the smaller pickups won't cut it for serious work. Maybe a Volt plus an old diesel pickup for occasional use?

For the 10,000 mile-a-year driver, I don't think economics alone would justify buying a Volt. My take is that most of the early purchasers will be urbanites with an interest in reducing their consumption of fossil fuels. They'll be prepared to pay a bit extra for their beliefs and for the intangibles around having near-zero operating emissions. It'll be a smaller fraction who worry about where their electric power comes from.

Bruce Howlett said...

Stuart,
As a resident of Ithaca I have to warn you that all my friends with Prius' see severe drop off of MPG in the winter. You know the physics of batteries and temperatures. MPG drops to 30-35.

Bob said...

It's hard to see how the finances work out for anyone but the rich. With 10% unemployment, who is going to buy these things? Let's get real. We will be lucky to keep paying on our current bump-boxes. I already get better gas mileage than a Prius and it was a lot less expensive. I own an old 4-cylinder Mazda that gets 30 mpg and does my big trips. For small errands I drive a Honda Metropolitan scooter that gets 100 mpg. Total cost for both vehicles: $6,000. No car payments, reliable transportation, great gas mileage. Come on America! Take that GM! The Volt simply doesn't add up. It has no clear advantage unless you assume astronomically high gas prices.

Nick G said...

Bruce,

The Volt pre-heats the battery using grid power. If you're in cold temps for a long time away from a plug, the ICE engine can power the battery temp management system.

LangoneRedStudyGroup said...

One slight comment with your analysis - Net Present Value. The money you lay out up front greatly exceeds the money you'll save in year 10. Maybe. All depends on the price of oil. But assuming you could invest the different between what you'd save in some oil-related stock (as a crude hedge - pun intended!) I think that makes the case for the plug-in less appealing.