With this article, we’re launching a new section on personal finance, exploring financial concepts through everyday situations.
I bought an electric car
Recently, I purchased an electric car. Although I’m not particularly picky about cars, I value quality highly. My previous vehicle lasted twelve years, long enough to appreciate the major advances in the automotive industry—especially in the electric segment. Today, electric cars offer technology, range, and prices that seriously justify considering them, as we’ll see in this analysis.
The main reasons behind my decision were:
- My commitment to sustainability.
- Significant economic benefits.
The first reason stems from personal values—it may not matter to everyone. The second affects anyone who pays attention to their finances. As a “homo economicus” (a person who tries to make rational financial decisions), I carefully analyze the economic aspects of important choices, such as buying a vehicle.
Basic finances of an electric car
For this analysis, I compare an electric car and a combustion-engine car that meet four key criteria:
- Spacious enough for family use.
- Suitable for professional work (visiting clients).
- Compatible with the limited dimensions of my parking space.
- Minimum durability of 10 years.
The initial result was eye-opening: the electric car costs around €53,000—significantly less than its combustion equivalent (€75,000 after a 10% discount). Even including installation of a home charger, the electric vehicle remains 27% cheaper (€20,550 less).
In the following table, I show a chart with the “simple finances” that I made myself and that anyone can make:
There are specific incentives for electric vehicles:
- 70% of the cost and installation of the home charger.
- €4,500 from the Moves III Plan.
- Up to €3,000 deduction on the income tax return.
These incentives reduce the total payment to €30,935—compared to €60,000 for the combustion vehicle (48% less).
The fuel consumption analysis showed a notable difference: for the planned 20,000 km per year, the fuel savings exceeded €17,420 (80% less). See Appendix I for a more detailed analysis.
I also investigated maintenance costs, estimating an additional 50% savings (€3,500), as shown in the table below.
Conclusion: the electric car has a total cost over 10 years of €47,215 compared to €98,200 for a combustion engine, a saving of 52%. This substantial difference also convinced me financially.
The estimated total cost per kilometer is €0.24 compared to €0.49 for a traditional vehicle.
Advanced finances of an electric car
I’ve called the previous analysis simple finance, since, strictly speaking, a financial analysis must consider the timing of each disbursement. This section on advanced finance helps explain this concept, which is related to the saying “time is money,” or, in other words, that tomorrow’s money is worth less than today’s money:
- Due to the effect of inflation.
- Why does the capitalist world demand a return to lend money?
This means that a discount rate (or interest rate) must be applied if future disbursements are made to convert them into current money. In the example, I applied a 3% annual discount rate, and the result can be seen in the following table. I applied 3% because that’s the interest rate applied to the loan I took out for a portion of the loan I decided to defer. In Appendix IV, I comment on whether it’s worth financing a car.
Therefore, the disbursement is updated each year, taking into account the years elapsed. For example, for year 2, the date I expect to have received the aid, the net €6,887 recovered (€8,515 of aid – €1,628 total annual expenses) becomes €6,492 (€6,887/(1+3%) ^2 = €6,492), and so on for each year according to the formula:
Annual disbursement of the year / (1+3%)^year.
In this case, the more precise difference is 51% instead of 56%, or -€47,274 instead of €50,985.
In the following table, we apply inflation of 5% for electricity and 3% for fuel, further testing the robustness of the model. Despite this higher estimated inflation for electricity, the financial advantage of the electric car remains significant, resulting in a savings of €49,864 (-52%), similar to the basic analysis.
Why does it make sense to switch to electric cars today?
One of the most important conclusions of this analysis is to become aware of how expensive it really is to own a car, regardless of the type of energy you use.
In my particular case, combining my concern for sustainability with my homo economicus profile, opting for an electric car turned out to be clearly the most rational and economical decision. The figures analyzed confirm that, from a purely financial perspective, there are practically no solid arguments for continuing to opt for a combustion car.
Moreover, my personal experience with the actual range of an electric car shows that there is no practical difficulty in daily use: charging at home is economical, convenient and more than sufficient for everyday journeys. For weekend trips, even if distances of more than 400 km round trip are covered, the range of the electric car responds without any problems.
Only on particularly long trips might it be necessary to plan an intermediate stop for charging. However, with the current network of strategically located fast chargers, these stops naturally coincide with the necessary rest, meal or bathroom breaks. In short, from the standpoints of convenience, economy and sustainability, the transition to electric cars makes perfect sense today.
ANNEX I: On the calculation of consumption
This appendix has a practical focus, especially for those considering the purchase of an electric car.
The tables above detail the method used to calculate the annual consumption costs of both the electric car and the combustion car. For the electric car, the calculation considers a realistic combination of charges: 90% at home during the night at a cheap rate (approximately €0.08/kWh), and the remaining 10% at fast chargers outside the home (more expensive, around €0.35/kWh).
As a result, the estimated weighted annual cost to travel about 20,000 km per year with the electric car is €428, compared to €2,170 for an equivalent combustion vehicle. This annual difference of approximately €1,742 translates into a significant total saving of €17,420 over 10 years.
This saving in consumption seems stable and proportionally similar for different types and ranges of electric vehicles, which in itself represents a solid argument for seriously considering their purchase.
APPENDIX II: Whether to finance a car
As a general rule, it is not advisable to finance our purchases, since financing always entails additional costs that considerably increase the final price of what we acquire. Ideally, the most prudent option is to wait until you have the money needed to make the purchase.
However, it is also important to consider the significant outlay involved in buying a car today. A homo economicus always analyzes the opportunity cost of money; that is, the potential return foregone by using the money for a particular expense rather than investing it.
In my case, thanks to the experience I have gained as an investor, I usually obtain returns significantly higher than the 3% financing cost. Let’s assume, for example, that I earn an average annual return of 10%. In that scenario, by investing the available capital instead of using it directly for the purchase of the car, I calculate an additional net gain of more than 13,000 euros over 10 years.
Thus, although it is generally not advisable to go into debt, it could be beneficial to finance a car for those who can obtain returns significantly higher than the cost of the loan. The greater the difference between the potential return and the interest paid, the more justified it will be to go into debt.
In my particular case, I decided to finance only a part of the total cost, providing a larger initial down payment, and leaving a residual value after 5 years as an additional measure of financial prudence and flexibility.
