When Is A Hybrid Car More Cost Effective Than A Traditional Car?

When I was choosing to buy my first car after finishing my training (read: eminent income boost), I agonized over a handful of dissonant choices: fancy vs budget, SUV vs sedan, SUV vs hatchback, sedan vs hatchback, hybrid vs traditional, and American vs Japanese vs European. Or should I just let loose and buy a Hummer?

I strongly considered getting a hybrid vehicle, not because I am environmentally conscious, but I did not want to spend as much of my time waiting at the pump getting gas. At first glance that’s a silly requirement, but you can lose 20 minutes every one to two weeks at the pump. Combine that with your daily commute and you have wasted at least 5 hours of your week in your car. The environmental advantages of a hybrid have been debated online as well, as some claim that the energy consumed from production of hybrid car batteries and components vastly outweighs any savings from pollution reduction.  While the government has ceased giving tax breaks to hybrid vehicle owners, the price differential between hybrids and their gasoline counterparts has become marginal over the past few years.

I decided to look at two categories of cars:

Mazda 3 vs Toyota Prius

I test drove both of these cars and decided that there were very similar in price point. A mid-range Mazda 3 came in roughly at $20,000 new while a Toyota Prius was around $24,000 new for the base model. I did note that the Toyota dealers in the area often added many accessories into the car, which often drove up the sticker price at least $1,500. I also considered used vehicles for added savings but unfortunately did not have the cash to make a full payment on the car, and there were limited used car options in my area at the time I needed a car. Alas that is the life of a poor doctor!

The Mazda 3 and Prius were advertised to support a 39mpg and 48mpg highway fuel economy, respectively. This was impressive since the Mazda is not a hybrid vehicle! I decided to compare the annual cost of gas for each car and made a graph:

Comparison of Gas Expenditures Between Mazda 3 and Toyota Prius

At the time I was deciding to buy a car, car prices were at an all time low, around $1.85/gal! During the past two years, I believe that the higher I would have paid for gas was around $2.60 a gallon, with averages in the $2.20 range. For the purposes of the graph, I assumed that gas was $2.50/gal. At 15,000 miles per year, the difference in gas expenditure between the Prius and the Mazda would have been $180.29! Assuming that the Mazda 3 and Toyota Prius are equivalent cars (they are not), is it worth spending $4,000 more up front for the Prius to save around $180 a year in gas? Obviously the breakeven point could change if I clocked in more mileage per year or the price of gas were higher, but cost-wise, it did not make sense in my situation to drive a Prius.

Lexus ES300h vs Lexus ES350

What if I wanted a luxury car? A hotshot doctor shouldn’t be driving a common car, right? We need leather seats, power, and class! I looked into a Lexus ES350 and its hybrid counterpart, the ES300h.  The advertised prices were $38,000 vs $40,920, respectively. There doesn’t appear to be as much of a price differential. The fuel economies were 31mpg on the highway for the ES350 and 40mpg combined for the hybrid. At 15,000 annual miles, the hybrid would save $326.61 if premium gas were $3/gal (yes I live in an area where gas is cheap!)

Annual Cost of Gas Comparison Between the Lexus ES350 and Lexus ES300h

Conclusion

At any rate, it is clear that the gas cost benefit of a hybrid vehicle increases as the price between the hybrid and its gas equivalent diminishes. The breakeven time will of course diminish as price of gas rises and number of miles driven increases (you don’t need a graph to understand that). The estimates that I used compared highway driving for the gas vehicles to combined driving for the hybrid (highway fuel economy for hybrid cars can actually be less than city driving since the gas engine has run).

There is also a huge discrepancy between the cost of the hybrids from model to model. My example of the Lexus ES350/ES300h is seems to be an anomaly at a $2,000 difference. The Lexus LS460 commands a price of $72,000 while its hybrid counterpart (LS600h, albeit with more features) comes in at $120,000!

Frankly, if I had the money to buy a used vehicle with cash, I would have done so. I opted for the best choice I could afford at the time, a Mazda 3 from the dealer. I was able to finance (cringe) the vehicle at 0% APR for 5 years! That’s right, no interest for the life of the loan. I currently average around 38-41mpg combined driving (no hypermiling tactics used) on the car and drive around 16,000 miles a year (MMM would give me a face punch for driving so much, but that story is for another time).

My selection against a hybrid (Prius or Civic) works for me because gas is so inexpensive in my area. Regular gas at its peak was only $2.60/gal!

Did I make a reasonable choice for a car purchase at the time? What car would you have opted for?

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