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| The Economics of Hyping Hybrids |
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 Have you ever wondered if a Hybrid vehicle was worth it? For all the environmentalists out there the answer is of course a resounding yes. However everyone else seems to be a bit more down to earth pragmatic when it comes to saving money. To those regular folk it thus becomes more of a question of if the total long term benefits out weigh the total upfront cost. Alright, I wondered about the real benefits of owning a hybrid myself and couldn't come up with any satisfying answers on a web search so I complied my own data off of my own Honda Civic 2005 Hybrid. Take a look and see how the reality is that Hybrids do make an excellent case if you're in a tax bracket that could use a couple thousand dollar write off :-)
Let's start with the Kelly Blue Book Value comparison of what is at it's base and with similarly configured features very much the same car. Note that the prices on the Kelly site vary over time and mine below reflect the prices when this article was published. In reality I payed several thousand dollars less than list price for my car, but we're looking for a common ratio here.
A Honda Civic Regular Manual 2005 at 32/38MPG is $15,261.00
A Honda Civic Hybrid Manual 2005 at 46/51MPG is $20,041.00
The premium you pay for Hybrid technology is the difference in price: $4,780
Assume the Regular fills up for gas once a week
13.2 gal tank * $2.35 per gal * 52.177457 weeks in a year = $1,618.54 for gas per year
A Hybrid week fill up is every (46+51)/(32+38) = 1.385714286 weeks
13.2 gal tank * $2.35 per gal * 52.177457/1.385714286 fuel efficient week = $1,168.02 for gas per year
That's $1,618.54-$1,168.02 = $450.52 savings in gas a year for the Hybrid
Assume a car lifetime/battery lifetime of 8 years (because that is how long the battery is warranted by the manufacturer before you have to spend =< $2,000 to replace it). That's 8 * $450.52 = $3,604.16 in total gas savings. Alright at first glance that means you paid $4,780-$3,604.16 = $1175.84 more for your Hybrid car than your Regular car. Ah but that's what you would think at first, however not exactly! Also you have to factor in the time value of money because a hybrid is an investment that only pays off itself slowly over time. So let's do that.
Let's say that $4,780 (difference in car price) is the the initial borrowed principal for a time value of money "account" that must be payed off. According to my constants above you pay 13.2*2.35= $31.02 for Regular gas per a week and 31.02/1.385714286= $22.39 for Hybrid gas a week. That is (31.02-22.39)*1.385714286= $11.96 placed into your pocket every Hybrid week paying into that time value of money "account" that currently has a deficit. Assuming a 3% average yearly inflation rate we're going to see what the left over deficit of the "account" is after 8 years and 37.653834941*8= 301.230679528 payments of $11.96 have been made using a loan balance equation.
A= beginning deficit, i= interest, n= # of payments made, P = payment amount
3% inflation interest a year is 0.0796732% per a Hybrid week, so i = 0.000796732
Balance = A(1+i)^n - (P/i)[(1+i)^n 1]
Balance = 4780*1.000796732^301.230679528 - (11.96/0.000796732)*(1.000796732^301.230679528-1)
Balance = 4780*1.271127834 - 15011.321247295*0.271127834
Balance = 2006.004031263
Using this more accurate time value of money adjusted equation shows that after 8 years you really paid $2,006.00 more total for your Hybrid car than the Regular car. Ah, but what if we mess with the constants in a realistic way? For instance gas prices have been a bit higher than average adjusted for the consumer price index and also inflation is just now rising above the average (think the tail end of the 70's except not quite as bad). Let's set 4% inflation and $2.75 per a gallon of gas at the pump. That's now (36.3-26.20)*1.385714286 = $14.00 gas savings every Hybrid week.
Balance = 4780*1.001062309^301.230679528 - (14.00/0.001062309)*(1.001062309^301.230679528-1)
Balance = 1614.53
First it was $2,006.00 and now it's $1,614.53 for a difference of $391.47. Future gas prices do seem to have somewhat of an impact. Since I bought a new Hybrid car this year I'm eligible this year only for a one-time Federal tax deduction of $2,000. The law changes after this year so if I would have bought my hybrid car in 2006-2009 I'd get a $1,700 one-time Federal tax credit. See how close my above calculations are to those two tax break numbers, interesting no? The after 2005 credit is variable depending upon the fuel efficiency of the specific Hybrid vehicle. It's nice to note as long as incentive laws remain on the books I'm allowed to ride in the Virginia HOV lanes without any passengers. Not to mention the Hybrid Civic's engine is whisper quiet. In my example the car traveled a total of 176,318 miles in 8 years. If perhaps you believe that the Hybrid car and battery can last 10 years then it would travel 220,398 miles and using our first equation again this time would only cost $1202.13 more than the Regular car. Sooo now how about taking account of the tax credit... once more, with feeling:
Balance = 4780*1.000796732^37.653834941 - (11.96/0.000796732)*(1.000796732^37.653834941-1)
This leaves you with $4,468.54 of deficit left to pay after one year and then subtract $2,000 worth of tax credit and you only have $2,468.54 of deficit left to pay.
Number of payments left = -log(1−iA/P) / log(1+i)
Number of payments left = -log(1−0.000796732*2468.54/11.96) / log(1+0.000796732)
225.584875057 payments / 37.653834941 Hybrid weeks = about 6 more years for zero balance to equal a grand total of 7 years until parity. The last couple of months the hybrid makes you... *drum roll*
Your profit = (P*[(1+i)^n-1]) / i
Your profit = 11.96*(1.000796732^37.99196953-1) / 0.000796732
A gain of $461.14!!! Amazing!!! Now go buy one ;-)
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Posted on Monday, November 14 @ 15:58:10 PST by GunPlay |
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