The Economics of Electric Cars

Kunal Sahasrabuddhe
October 24, 2010

Submitted as coursework for Physics 240, Stanford University, Fall 2010


For many decades, cars have been powered by oil and its derivatives, with little regard to the impacts of these decisions on our climate and health. This was made possible by low oil prices throughout most of the history of the automobile. Now, though, with the recent spike in oil prices and the increasing certainty that human-induced climate change is real, alternative methods of automotive propulsion are becoming more attractive from both social and economic standpoints.

The GM EV1

The first major foray into electric cars came in the early 1990s, with the development of the General Motors (GM) EV1, the first large-scale production car designed from the ground up as an electric vehicle. First generation EV1s had a stated range of 70-100 miles, provided by lead acid batteries. However, none of these cars were sold, simply leased, and with monthly payments starting at $399, they were an expensive proposition for most. [1] In 1999, however, GM released the second generation EV1, whose later models were equipped with nickel-metal hydride (NiMH) batteries. NiMH batteries were invented in the early 1980s, and had higher energy storage densities than lead-acid batteries, giving cars that uses them an increased range of 100-140 miles on a charge. Base model lease rates also dropped to $349 per month, making them more affordable to a larger (but still quite small) fraction of the public. Batteries remained expensive, and GM canceled the EV1 in 2003 because they believed consumers thought their cars had low driving range and long battery recharge times, and were therefore inconvenient to operate. [2] This effectively killed the electric car at the time.

Hybrid Electric Vehicles

Starting with the launch of the Toyota Prius in Japan in 1997 and worldwide in 2001, hybrid electric vehicles have become increasingly popular, initially with the proliferation of hybrids from the major Japanese manufacturers, and now also from manufacturers from Europe and the USA. These cars have a battery to power an electric drivetrain, as well as an internal combustion (IC) engine to take over when the battery runs out of charge, as can happen over longer-distance travel. With prices close to those of pure IC-powered cars, and subsidies and tax-credits from governments, such as a tax credit of up to $3,400 for consumers buying hybrid electric cars in the United States, early hybrids were not considerably more expensive to buy than gasoline-powered cars. [3]

Hybrid vehicle mileage is calculated by appropriately weighting electric and combustion engine cycles by estimated use; the latest generation Toyota Prius boasts a combined cycle mileage of 50 miles per US gallon, the highest of any production car with an internal combustion engine, making it economical to operate than conventional petroleum-powered vehicle. [4] However, this method highlights the difficulty of comparing electric, hybrid and gasoline cars on the basis of a single figure. [5]

Pure Electric Cars in Recent Years

In recent years, battery electric vehicle (BEV) development has once again increased. Tesla Motors entered this market in 2008 with their Roadster, a BEV sports car powered by Lithium Ion batteries like those used in laptops and cellular phones, charged from a wall outlet and capable of covering an average 245 miles on a single charge; with a record of 313 miles. [6,7] Other manufacturers have also launched electric cars, expected to go on sale in the near future, such as the Nissan Leaf, a fully electric vehicle, and the Chevrolet Volt, GM's latest electric vehicle design that incorporates an IC engine that can power the car when its battery is completely discharged. [8]

The economic viability of electric cars hinges partly on the infrastructure built to support them, from servicing cars to recharging their batteries or swapping them. Cars with IC engines can go long distances with minimal delays due to the ubiquity of gas stations where they can be easily and quickly re-fueled. Electric cars, on the other hand, must be charged when they reach the end of their range, a process that can take several hours; for instance, the Tesla Motors high power charging systems provide at most 56 miles of driving range per hour of charge. [9] However, manufacturers are now planning to install charge stations that would allow consumers to charge their cars at locations other than their home charging station. Manufacturers claim that fast-charging stations will cut this time significantly, but it may be some time before these are installed in as many locations as gas stations. [10,11]

The upcoming Chevrolet Volt instead uses an IC engine to recharge the battery and even power the wheels when the battery runs low, but this disqualifies it from being a true electric car. Rapid charging stations are yet to be set up for electric cars, making electric cars unviable for long-distance journeys.

Further, electric cars are at this point too expensive to be viable. Battery packs are still the most expensive component, and until they become cheaper, electric cars will continue to be considerably more expensive than their direct IC-engined competitors. [12] However, as battery prices drop, one can expect to see more electric cars become more viable. The average person commutes 15,000 miles annually, or slightly over 40 miles a day. [13] Electric cars are ideally suited for driving such distances, and combined with the possibility of recharging them at night, when electricity prices are low, electric cars could become much cheaper to operate than petroleum-powered cars.

Another major issue with electric cars is battery lifetime. The battery pack in the Tesla Roadster is warrantied for 100,000 miles or 7 years. [6] While IC engines are not typically warrantied much longer than this, they have shown an ability to last through decades of use and a lot more than 100,000 miles. Electric cars cannot be considered economically viable unless they can match this longevity, as a battery replacement for most electric cars is a significant fraction of the cost of a new vehicle; the Nissan Leaf battery currently costs around $18,000. [14] However, battery life is as yet untested, as no recent electric cars have been run under everyday driving conditions for that long. This is, however, a concern for the economic viability of the electric car.


It is clear, then, that electric cars are not truly viable today. It is conceivable, though, that as battery packs become cheaper and petroleum more expensive, electric cars will cost the same as IC-powered cars not long from now, and might well become cheaper to own and operate than traditional petroleum-powered cars in the near future.

© Kunal Sahasrabuddhe. The author grants permission to copy, distribute and display this work in unaltered form, with attribution to the author, for noncommercial purposes only. All other rights, including commercial rights, are reserved to the author.


[1] K. Naughton, "Detroit: It Isn't Easy Going Green," Business Week (Intl Edition), 15 Dec 97.

[2] S. Ashley, "GM Resurrects its Electric Car (with Tweaks)," Scientific American, 7 jan 07.

[3] "Federal Tax Credits for Hybrids," US Environmental Protection Agency, 14 Dec 10.

[4] "Top Ten Lists," US Environmental Protection Agency.

[5] N. Bunkley and B. Vlasic, "Plug-In Cars Pose Riddle for EPA," New York Times, 14 Oct 10.

[6] "Roadster Features and Specifications," Tesla Motors.

[7] "Tesla Roadster Travels 313 Miles on a Single Charge," Tesla Motors, 27 Oct 09.

[8] F. Romero, "A Brief History of the Electric Car," TIME, 13 Jan 09.

[9] "High Power Wall Connector," Tesla Motors.

[10] "Renault-Nissan, EDF to Develop E-Cars and Infrastructure in France," EE Times Europe, 10 Oct 08.

[11] A. Danigelis, "Electric Vehicles, This Plug's for You," Discovery News, 13 Oct 10.

[12] I. Greenstein, "The Fallacy of Electric Car Economies," Contrarian Profits, 2 Jan 09.

[13] G. Sundstrom, "AAA Calculates Driving Cost at 52.2 Cents Per Mile for 2007," AAA Newsroom, 26 Mar 07.

[14] M. Ramsey, "Nissan Says Leaf Electric Will Be Profitable With U.S. Plant," Wall Street Journal, 13 May 10.