Is Owning an EV Really Cheaper Than an ICE Vehicle? If You Factor in Depreciation, It’s Not So Clear-Cut

The debate over whether electric vehicles (EVs) are genuinely cheaper to own than traditional internal combustion engine (ICE) vehicles has been heating up in recent years. As EV adoption continues to surge, consumers have been drawn to the promise of lower maintenance costs, fewer moving parts, and the appeal of an environmentally friendly choice. Yet, as many enthusiasts and analysts have pointed out, the reality may not be as straightforward as it seems—especially when you factor in depreciation.

Upfront Costs and Tax Incentives

Let’s start with the positives. On the surface, EVs often seem like a more affordable option for consumers. EVs benefit from various government incentives and tax rebates designed to make the transition from gasoline vehicles easier. These can significantly offset the high initial price tag of many electric vehicles. For instance, tax credits can reduce the cost of a new EV by up to $7,500, depending on the model and other eligibility criteria. Additionally, some states offer their own incentives, such as rebates for the purchase of EVs or grants for home charging stations.

When you compare the initial cost of an electric car to an equivalent ICE vehicle, the EV may still seem like a winner, especially if you factor in savings on fuel. As gasoline prices continue to fluctuate, charging an EV at home is often far cheaper than keeping an ICE vehicle fueled up. The price difference between the two models—though sometimes noticeable—becomes easier to justify when you consider these incentives and lower fueling costs.

Depreciation: The Hidden Cost

However, one of the major factors that make owning an EV not quite as cheap as anticipated is depreciation. When you buy a new car, depreciation is inevitable. It’s often the largest expense for car owners after the initial purchase. But the rate at which cars lose their value differs between EVs and ICE vehicles.

Depreciation rates for electric vehicles are currently steeper than those for gasoline-powered vehicles. This can be surprising to many buyers, given that EVs are perceived as more technologically advanced. While some of the highest-end EVs, like Tesla, hold their value relatively well, mainstream electric models tend to experience faster depreciation.

Why is that? Several factors contribute to the high depreciation rate of EVs. For one, the technology surrounding electric vehicles is advancing rapidly. Newer models with improved range and features are constantly entering the market, leaving older models less desirable. Additionally, the long-term viability of the battery, which is a significant component of an EV’s value, can be a concern for buyers. While batteries are improving, many consumers are still wary of potential costly replacements or repairs down the line.

According to recent studies, the average depreciation rate for EVs is around 50% within the first three years of ownership, compared to around 40% for gasoline vehicles. In the case of some electric models, this gap can be even wider, meaning that an EV owner could potentially lose more value on their car within a shorter time frame.

The Role of Incentives and Incentivized Leasing

One way to reduce the impact of depreciation is through leasing. Leasing offers consumers the opportunity to drive a new car every few years without the responsibility of long-term ownership. With EVs, leasing has gained popularity as it allows consumers to take advantage of the latest technology without bearing the brunt of depreciation. Additionally, many electric car manufacturers offer attractive leasing options to make EVs more accessible, especially for those who are skeptical about long-term ownership.

Leasing also allows consumers to take advantage of government incentives without worrying about depreciation eroding the car’s value. The potential to drive a new model every few years could make leasing a more attractive option for those considering an EV but hesitant about the depreciation factor.

Maintenance and Repairs: The True Cost Savings

On the maintenance side, EVs do generally have a leg up on ICE vehicles. EVs have fewer moving parts, meaning less can go wrong. There’s no oil to change, no exhaust systems to repair, and the brake systems tend to last longer because EVs use regenerative braking. These factors result in lower overall maintenance costs for EVs. A report by Consumer Reports found that EV owners can save around $4,600 over the course of 10 years compared to ICE vehicle owners in maintenance and repairs.

When Does the EV Make Sense?

For many consumers, the decision to buy an EV ultimately depends on how much they drive, their geographic location, and their willingness to adopt new technology. The more you drive, the more you’ll benefit from lower fueling and maintenance costs, and the better the case for switching to an EV becomes.

However, if you plan on keeping your vehicle for a long time, depreciation remains a key factor to consider. You might be getting a great deal upfront, but the vehicle’s value could drop faster than you anticipated. This is something that buyers should factor into their decision-making process when evaluating the overall cost of ownership for an electric vehicle.

The Bottom Line

So, is owning an EV cheaper than an ICE vehicle? In terms of fuel and maintenance, the answer is generally yes. But when you account for depreciation, especially with newer models and rapidly advancing technology, the story becomes a bit more complicated.

The EV market is still young, and as adoption increases, it’s possible that depreciation rates will stabilize, especially as the second-hand market for EVs grows and battery technologies continue to improve. But for now, it’s crucial for potential EV buyers to keep the long-term cost of ownership in mind—taking into consideration not only the initial price and savings on fuel but also the potential loss in resale value.

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