Wednesday, 10 December 2014

Toyota Prius

Companies & Industries

With $2 Gas, the Toyota Prius Is for Drivers Who Stink at Math

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With $2 Gas, the Toyota Prius Is for Drivers Who Stink at Math
There’s a big discount on driving these days, thanks to the drill-baby-drill refrain at OPEC echoed in Texas and North Dakota. The savings are most concentrated for those driving cars with old-fashioned combustion engines. A road trip in a Ford F-150 pickup from New York to Los Angeles costs about $292 at the moment, roughly $84 less than it did just two years ago. A stop for gas in the middle of the country will cost less than $2 per gallon.
All of this is a major problem for anyone trying to sell hybrid and electric vehicles. Electric engines and their massive batteries have never been cheap. A big part of the sales equation— savings at the fuel pump—has virtually vanished.
To get a sense of just how much the market for efficient vehicles may be crimped by falling gas prices, we did some hypothetical comparison shopping. The contenders included: the Chevrolet Cruze, a fairly efficient gas-powered compact car; the Toyota Prius, the most-popular hybrid in the country; and the Nissan Leaf, the most-popular all-electric car in the country. All these cars have four doors, little trunks, and not much else. Our analysis was based on the cost of each car, its federal “combined” mileage rating, and the annual miles logged by the average U.S. driver (13,476 by the Federal Highway Administration's count). We also factored in federal tax credits for the Prius ($2,500) and the Leaf ($7,500).
The takeaway: Toyota should hope that Prius-curious shoppers don’t pull out a calculator.
It would take almost 30 years of fuel savings from the hybrid Prius to cover its price premium over the little Chevy Cruze, although that doesn't account for the Chevy buyer marking savvy investments with her savings in the meantime. It doesn't matter since we will all be flying around in futuristic Teslas before the Prius pays off. The all-electric Nissan gets a lot closer: The all-electric Nissan Leaf, without any gas stops, take just 3.8 years on the road to beat the cheaper sticker price of the Cruze.
The Cruze gets a respectable 30 miles per gallon of combined highway and city driving, but its real strength is relative affordability. Without a second engine and a massive battery, the average Cruze had a $21,322 sticker price last month, compared with almost $31,973 for a Prius and $32,933 for a Leaf. Even after federal tax breaks, Cruze buyers start with an advantage of $8,151 over the Prius and $4,111 over the Leaf. That’s a lot of gas money.
For the 13 states with no hybrid incentives, this is where the equation stops. The electric engines can catch up a bit more in places that have state and local incentives for efficient vehicles. Car-shoppers will have to do some homework because the range on incentives is quite broad. Arizona gives a $75 tax break to drivers who install a charging outlet in their home. At the other end of the spectrum, Colorado offers up to $6,000 in tax credits via a formula that takes into account the purchase price of the vehicle and its battery size.
A Leaf in the Rocky Mountains, for example, is cheaper than the Cruze before it even leaves the lot. The Prius, however, still has trouble keeping up. Its tax credit in the state of Colorado would only cover about a year’s worth of gas in a similar non-hybrid vehicle.
Of course, there are several factors left out of this analysis: the cost of replacing an electric engine battery, the possibility that gas prices climb again, and the value one puts on simply burning less carbon. Plenty of people will quibble with whether the Cruze is a worthy comparison, and there's still the weighty questions of how much governments will sweeten incentives for electric engine customers and how fast the cost of high-tech batteries will fall in the not-to-distant future.
But most people weighing a small car purchase at the moment are likely doing just this kind of back-of-the-envelope calculations. The Leaf makes a compelling argument, even if it can only go 84 miles between charges. The Prius math, on the other hand, is particularly unappealing while gas sells cheap. And that Dodge Challenger Hellcat with its 707 horses burning 16 miles-per-gallon? That muscle car is looking more prudent than ever.
Kyle-stock-190
Stock is an associate editor for Businessweek.com. Twitter: @kylestock
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