Are Hybrids Worth It?

In the market for a new car recently, I had to make (what I assume to be) the same decision facing other new car buyers: (strictly speaking from the perspective of a rational self-interested consumer) does it make sense for me to spend money on a hybrid car?

Let’s look at two somewhat-comparable cars (in terms of size/specifications): the Toyota Matrix and the Toyota Prius (because I’m a fan of Japanese cars, and Toyotas have a well-deserved reputation for being a solid/reliable brand).

The 2011 Prius has an after-tax Manufacturer’s Suggested Retail Price (MSRP) of $33,210.70 — assuming you don’t go for any of the fancy trim upgrades. The 2011 Matrix has an after-tax MSRP of $24,653.80, assuming a “convenience package” to give it a comparable feature-set to the Prius.

This means that you’ll be spending $8,556.90 more on the Prius than you would on the Matrix.

Both cars have an automatic transmission, a 1.8 Litre 4-cylinder engine providing approximately 100 kW (~130 hp) of power, have a capacity of approximately 1,800 kg and seat 5. The Prius is slightly heavier at 1,380 kg to the Matrix’s 1,305 kg. There are slight differences, but for most intents and purposes, these two cars are comparable.

Where they aren’t comparable is fuel efficiency. The Prius has a manufacturer’s fuel consumption rating of: 3.7 L/100km (city) / 4.0 L/100km (highway) / 3.8 L/100km (combined); whereas the Matrix has a manufacturer’s fuel consumption rating of: 8.1 L/100km (city) / 6.3 L/100km (highway) / 7.3 L/100km (combined).

Now, these two fuel consumption ratings are probably not typical of the type of fuel consumption you would see under real world conditions, but as a relative measure between the two vehicles, they’re probably fairly accurate (since both of these cars are manufactured/tested by the same company).

Nevertheless, Consumer Reports provides the following, likely more accurate, fuel consumption ratings for these two vehicles:

2011 Prius: 5.35 L/100km (40.8% above manufacturer’s numbers)
2011 Matrix: 8.11 L/100km (11.1% above manufacturer’s numbers)

Interestingly, the Matrix’s actual (i.e. Consumer Reports’ road test) fuel consumption rating is a lot closer to the manufacturer’s numbers than the Prius’.

Now we’re going to have to make a few assumptions:

Assumption 1: The current price of gas is $1.30/L. The price of gas is constantly fluctuating, but that’s about what it’s presently being sold for in the Greater Toronto Area — and I have little (or no) expertise with the price of gas outside of the GTA.

Assumption 2: You drive 20,000km/year. This is based on two things: 1) this is what the car manufacturer’s expect, as most warranties cover your various car parts for 3 years or 60,000 km and 5 years or 100,000 km; and 2) assuming you have an average commute of about 50 km/day (round-trip), you’ll be driving just under 20,000 km/year (with a lot of wiggle room for other non-commute related car trips).

Assumption 3: You will own and drive this car for a period of exactly five (5) years. This assumption might be the most controversial of the three, and I’m mostly pulling it out of my ass — but it seems like a good baseline, as most banks and dealerships seem to push 60 month (i.e. 5 year) loans when you’re looking at buying a car.

Assuming these two figures to be correct (and things like fuel consumption stays relatively constant between cars over time), you’re going to spend the following totals on gas each year:

2011 Prius: $1,391.00 (5.35 L/100km x 20,000 km / 100 x $1.30/L)
2011 Matrix: $2,108.60 (8.11 L/100km x 20,000 km / 100 x $1.30/L)

This means that each year, you’re spending $717.60 more on gas if you’re driving a Matrix, rather than a Prius. This may seem like a lot, but don’t forget that we spent $8,556.90 more for the Prius, meaning that at the end of our 5-year period we’re still $4,968.90 in the hole from our purchase. In order to break even on gas costs, we would have to keep the car for nearly twelve years! Now, if properly cared for, there’s no reason that the car wouldn’t last for that period of time; however, a cursory glance around while driving suggests that a vast majority of people do not keep their cars for that long.

Of course, this assumes that the price of gas remains at $1.30/L indefinitely — which will almost certainly not be the case. The other question that can be asked is: what would the price of gas have to be in order for the Prius to be a cost-neutral investment, compared to the Matrix, over a 5-year period?

Or, in other words, we have to solve the following equation:

8556.9 = [(8.11-5.35) x 100000 / 100 x G]

Where G is the price of gas. Solving the above equation gives a value for G of appoximately 3.1. Therefore, gas would have to cost $3.10/L in order to make back the extra cost of the Prius in gas savings over a 5-year period. Still much more than the price of gas in Canada and the United States, but the price of gas in some places is certainly nearing that level.

Now, keep in mind, this is only looking at the financial cost to a prospective consumer. This doesn’t take into effect pollution or any other environmental externalities. Though, in a perfect world, the price of gas would already take these factors into account. This isn’t to say that it doesn’t make sense to buy a hybrid vehicle for environmental reasons, or to support the continued development of hybrid technology — merely that as an individual consumer, there is no financial incentive* to do so at this time.

*Not taking into account the possibility of rebate programs of which I am currently unaware. Also, calculations will vary, depending on the brand and model of hybrid/non-hybrid car.

Edit: The original post contained the figure of $15.50/L instead of $3.10/L for the price of gas at which the extra cost of the Prius would be worthwhile. This was an error caused by accidentally solving for a 1-year payback instead of a 5-year payback. Sorry about that.

Edit 2: As Mike points out in the comments, the British Columbia Automobile Association (BCAA) has done similar/more in-depth studies on a yearly basis. The latest one is here.

16 Responses to “Are Hybrids Worth It?”

  1. Gorebug says:

    Since this is essentially a capital budgeting question you have neglected one important factor (although it likely wont change your conclusion).

    Salvage value.

    After 5 years both cars will have residual value if the owner needed to dispose of them. How much is a 5-year old prius worth compared to a matrix.

    This will likely change your ~$5,000 “in-the-hole” calculation, possibly significantly. Without that it is not a truly fair comparison.

    • Yeah, there are a few factors I didn’t consider, like the up-front extra cost of the car vs. the cost over time of the gas (unless you’re leasing/financing the car), or the depreciation, as you pointed out.

      It’s a good point, but I don’t have easy access to reliable used car pricing. It’s probably even more relevant when you consider that as the price of gas rises, fuel-efficient used cars become worth more in relation to their peers.

  2. Ethan says:

    One interesting thing to add to this might be to look at the gas prices and see if you can chart how much they’ve gone up over the past 5 years and try to factor that into your equation. If, say gas rose 80 cents a litre every year, that would probably impact the costs/benefits.

    Nevertheless, very interesting!

  3. Mike says:

    Every year, British Columbia Automobile Association (BCAA) does a similar study across a number of different models.

    This year’s study does a few different scenarios, such as more expensive gas, and includes some rebate programs. However, they appear to use the manufacturer listed fuel consumption.

  4. Chris says:

    Interesting post-one other thing it’d be interesting to factor into the model would be ongoing maintenance costs though. Yes, there will be a great deal of overlap, but how much extra does the hybrid drive system cost to maintain? Also, what about long term effects on fuel efficiency-i.e. what will the efficiency of the two cars be five or six years into their lifetimes? How much does the capacity of the hybrid battery degrade, and how will this change your payoff time?

    Honestly, the biggest surprise was how large the difference in MSRP between the two cars was. I had no idea that there was still that large a premium on a hybrid.

  5. Ray says:

    Has anybody looked at comparative maintenance costs? I haven’t but my gut feel is that a hybrid is more complex and therefore would have a larger ongoing maintenance bill.

    If you are going to justify a hybrid I think you have to consider more than money.

  6. I suspect the reason for the big difference in the Prius’ advertised fuel consumption, and Consumer Report’s “real world” consumption, is that they don’t know how to drive the car in the city. They probably just drive it the way most people are used to driving a car, and the gas engine will always be kicking on. Drive calm, keep acceleration low, and you can get *better* than advertised consumption.

    Of course, if you follow that strategy in any gasoline powered vehicle, you can cut your gas consumption significantly as well (at the expense of pissing off everyone behind you when the light turns green, because drivers have a psychological need to accelerate up to speed quickly).

  7. Darron Spohn says:

    I’d like to see someone objectively investigate the ecological impact of the batteries inhybrid cars. What impact does producing the batteries have on the environment? How kuch carbon does that process take? What kinds of chemicals might get released into ground water supplies?

    I’m not against hybrid cars. The only information I have seen regarding hybrid car batteries comes from sites comparing a Hummer to a Prius, with the Hummer coming off as more environmentally friendly. That is why I would like to see and objective evaluation.

    As for driving a Prius slow, that may save the Prius driver some gas, but the dozen people behind him who missed the light are getting zero mpg while idling.

  8. Nancy says:

    I don’t have numbers, but my Dad the car checker outer keeps commenting that battery replacement is required every few years in a hybrid and the cost of same is extreme – $ 3,000 or so I have read. Maybe they are coming down in price. And the environmental factor on battery replacement – how do you measure that against gas savings? What are we trying to achieve exactly with a hybrid since it doesn’t look like saving money is likely to happen at this stage.

    I think our best strategy would be to make cars, gadgets, and appliances that lasted much longer.

  9. Darron Spohn says:

    “Every few years” being every 150,000 miles or so. Not a big deal for me as I usually keep my cars for 90,000 miles then get a new one. Still, whoever owns the hybrid at 150k will need a new battery pack, and I’d like to see an environmental impact statement on those packs.

  10. Dan says:

    Or buy a 10 yr old Ford Ranger, 6 cylinder, for $5K, that gets 15 mpg. Spend $2K per year on mechanical maintenance. Drive 20K miles per year. You’re ahead.

  11. John says:

    I will be looking to replace my car at the end of the year (it’s 11years old) which is a VW Polo and I usually get 5.9 L/100 km. I don’t live in North America but the pro’s and cons are pretty much the same everywhere although gas is $2.05 a litre here, so fuel economy is a bigger factor.

    I’ve sporadically looked at the hybrid thing since my ex bought a used Prius 2001 some years ago when she swapped her Toyota Previa (8 seater) for the Prius, her fuel bill dropped from $300+ a month to $110 a month. She didn’t need the 8 seats any more. She still has the Prius I’m not sure of the milage on the clock , but the battery pack seems OK and her mpg is unchanged (5L/100km). She had to have the transmission repaired recently which has been her main expense the last 4 years.

    A few years ago I toyed with the idea of getting a clapped out Prius with a bad battery pack, cheap, as a project, as the packs can be serviced by replacing the bad NiMH cells and rebalancing them. Not something to do casually due to the risk of electrocution if one doesn’t know the risks. Anyway, I couldn’t find one.
    The used packs (and there are not many about) do have a high scrap value because of the nickel content and the rare earths (praseodymium etc) -2kg in each approx. The rare earths are in demand for recycling because of the Chinese monopoly in REE production and their recent export restrictions. Speaking to a few taxi drivers who have Prius’s the battery’s seem to run quite high miles, way past the 150,000k warranty given. None of them seem know anyone who has had issues.

    I recall reading somewhere the total energy cost of ownership (from factory to crusher) for a vehicle whether it be a large Hummer or small car was in the order of 85+% for the fuel used over its lifetime. The energy cost in the making of the vehicle was quite small in comparison.

    The one thing the puts me off the Prius here, is that every second taxi is a Prius now and that doesn’t appeal to the snob in me!

    • biped says:

      I recall reading somewhere the total energy cost of ownership (from factory to crusher) for a vehicle whether it be a large Hummer or small car was in the order of 85+% for the fuel used over its lifetime. The energy cost in the making of the vehicle was quite small in comparison.

      This bit I’m not so sure about. I can see great potential for wiggle room in the numbers. Expected reasonable lifetime of the vehicle ( is this trending up or down ). How recursively are the materials and acquisition of materials used in production of vehicles being accounted for.

      Then there is the cleanup of any byproduct waste, and any process that needs to convert the expired vehicles into recycled stock, or the impact of any non reclaimable material. But this would only come into effect if comparing long term ownership versus the 5 year swap into new leases.

      Most of the articles I’ve seen debating the cliche Hummer vs Hybrid seem to be very near sighted napkin math, even though some are more eloquent than others.

  12. Will says:

    I’m thinking of buying a used car for my wife.
    2009 Matrix XRS – 18,000kms – CAD $19,000
    2010 Prius Tech Package – 57,000kms – CAD $27,000

    We are not too sure which is a better buy. We also wanted to know if the Prius will have lots of electrical problems down the road! Does anyone have any ideas & suggestions?


  • Mitchell Gerskup

    Mitchell Gerskup recently graduated from the University of Toronto with a degree in Economics and Philosophy. An avid atheist and skeptic, he has served as the President of the University of Toronto Secular Alliance, helping to promote science, reason and critical thinking around Toronto. He also volunteers with the Centre for Inquiry’s Ontario branch, and currently sits on the CFI’s Committee for the Advancement of Scientific Skepticism. Mitchell is also an accomplished competitive debater, having debated all across Canada. In addition to issues of economics and philosophy, Mitchell is interested in the fields of science and technology.