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.