Electric Vehicles: Cost Savings Perspective (2022 Update)

With transportation accounting for the largest portion of US annual greenhouse gas emissions, electrifying the sector is a critical step to reducing U.S. emissions at scale. In a previous article, we calculated the major cost savings associated with EV ownership but dissected existing barriers to widespread EV adoption such as high upfront costs and range anxiety. Given unprecedented shifts in the transportation sector during the pandemic and post-IRA passage, this article presents the updated economic calculus of substituting an ICE vehicle for an EV.

Polar Forces in the EV Adoption Story: Rising Costs of Electricity vs. Gas

Though high electricity prices seem to do little to deter excited EV shoppers (California and Hawaii have both the highest electricity prices and the highest rates of EV adoption), expectations that electricity prices will only rise further and faster may now caution would-be EV buyers. Geopolitical events, such as Russia’s invasion of Ukraine, have tightened the global supply of natural gas, which in turn translated to higher electricity costs. Consequently, the US, which relies heavily on natural gas for its electricity production, has and will continue to suffer high electricity prices come winter.

In fact, the Energy Information Administration (EIA) forecasts that the US residential retail price of electricity will average ~15 cents per kilowatt-hour in 2022, up 8% from 2021.

Moreover, wholesale electricity prices are expected to be 20-60% higher on average this winter, with New England suffering the brunt of the high costs due to uncertainty regarding natural gas supply. National Grid, for instance, has announced a 64% increase in the monthly electricity bill of a Massachusetts residential customer in the winter 2022-2023 season compared to 2021 winter rates. Below is a residential electricity price forecast for US census regions in 2022 compared to 2021.

Source: Palmetto 

While intuitively regional surges in electricity prices may dissuade consumers from switching to EVs, the increasingly steep costs of gas may actually be a more salient factor in consumers’ decision-making.

Steady Pain at the Pump Accelerates EV Adoption

Since 2020, US consumers have been experiencing pain at the pump. Though the world is emerging from the pandemic and demand for oil has rebounded in full, the supply of oil is not regaining momentum. Oil executives are moving sluggishly, delaying the operations of oil rigs partly due to fears of a price crash.  

Source: The New York Times

 Meanwhile, Russia’s invasion of Ukraine exacerbates the uptick in US gasoline prices. Although only 8% of the US’s crude oil is sourced from Russia, Russia’s throttle on global crude oil supplies dominoes quickly into a global oil price increase and thus into higher gas prices at US pumps. In response, more consumers are looking to EVs as a more reliable and cost-effective alternative. This feeds into somewhat of a self-perpetuating cycle, as oil executives are now even more reluctant to restart oil operations in the midst of growing EV adoption (and several states’ planned bans on ICE vehicles), resulting in even higher gas prices, and so on. 

In sum, though rising fossil fuel costs since the pandemic began have resulted in more expensive electricity, it is still significantly more expensive to fill your gas tank than it is to charge your EV’s battery. This is true even in states with the highest electricity costs, such as Massachusetts and California. Even if oil prices may fall as producers ramp up supply in the future, it is unlikely that the price of electricity will rise enough to make the lifetime costs of EVs more expensive than ICE vehicles. In the next section, we present the state of fuel cost savings across the US in 2022.

Save More When You Switch in 2022: New Fuel Cost Savings Across 50 States

In 2020, we calculated the fuel savings per 10,000 miles of driving an EV versus an ICE vehicle. With the price of gas and electricity on the rise, here is a summary of fuel savings across 50 states.

Made by ADL using data from EIA and AAA Gas Prices

In 2022, consumers in all states reap cost savings when they switch from an ICE vehicle to an EV. While consumers in the West Coast enjoy the steepest fuel cost savings, those in the South and Northeast enjoy slightly lower savings. Let’s take a deep dive into the top and bottom five states for EV fuel savings. 

Between 2020 and 2022, the economics of switching to an EV strengthened in nearly all US states with the exception of South Carolina and Louisiana (not pictured), where cost savings have actually fallen due to their relatively low cost of gas. Even in these two states, however, consumers can still expect to save at least $700 when they switch to an EV. 

It is worth noting that the EV fuel savings in West Coast states such as Washington and Oregon are more than double those of New England states such as Connecticut and Massachusetts. However, it will be interesting to watch how these economics evolve if New England electricity continues to rise at 60% or more per year.

In any case, as OEMs build out EV product lines and battery costs continue to come down, even $600 per year in fuel savings could be enough to tip the scale for vehicle shoppers.

Conclusion

In essence, this article presented the updated set of economic considerations of EV adoption in 2022. Despite surging fossil fuels and electricity prices, we conclude that consumers will still save substantially more with the purchase of an EV and noted the trend of positive cost savings accompanying the transition from an ICE to an EV in nearly all 50 states. 

Going forward, the shifting economic calculus of owning an EV could be difficult to predict. Raw materials for EV batteries are becoming much more expensive, with prices of lithium and nickel shooting up 400-500 percent since 2021. As a result, near-term consumer interest in hybrid models and hydrogen fuel cells is likely to rise. Strong demand for EVs, though, is unlikely to ebb. With more manufacturers introducing new EV models into the market and consistent improvements in battery range and charger density, steeper EV fuel cost savings await.

Rapid adoption of EV vehicles calls for more innovations and strategies in cost optimization, and ADL works to fill this gap. We collaborate with transportation companies, utilities, and other major stakeholders to facilitate the electrification of the transportation sector, advancing a clean, energy-independent future for partners around the world.