The Financial Advantages and Disadvantages of EVs

The Financial Advantages and Disadvantages of EVs

April 07, 2022
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Electric vehicles have become more and more popular over time. For those looking to reduce their carbon footprint while still traveling by car, they are a great alternative, but that’s not the only reason people are making the switch. EVs have an impact on both your world and your wallet, and the effects are not always completely positive.

The Financial Advantages and Disadvantages of EVs

In terms of your finances, there are multiple cost savings that come with the purchase of an EV.

1. Not needing gas to get around is an obvious advantage. The average American spends between $2,000 and $4,000 on gas every year, according to MarketWatch, and that was before recent price hikes.
2. EVs are known for being low maintenance. For starters, they don’t require oil to lubricate the engine, so wave goodbye to oil changes. You’re likely to spend less money at the garage on engine work, which can be quite expensive, than you would with a gas-powered car. Also, brakes won’t wear as quickly which means fewer replacements over time.
3. The federal government mandated that manufacturers offer an 8-year/100,000-mile warranty on EV batteries. That’s the required minimum, but some manufacturers offer even more protection, which can lead to substantial savings.
4. EVs can also come with federal tax credits and other state and local incentives.

However, there are some finance-related counterpoints.

1. Most EV drivers want a charging station at home, which is a cost not incurred by those with gas-powered vehicles.
2. Electricity isn’t free. Even though you will be saving money on gas, if you’re charging your EV at home during peak hours, your utility bills will likely go up. However, most drivers won’t see costs increase more than $20 a month on average.
3. Overall modern EV battery life is expected to be about a decade. If you need to replace your battery pack after the warranty is up but before you’re ready to stop driving your EV, your wallet will be taking quite the hit. Most estimates put new batteries well into the thousands of dollars.

The Environmental Advantages and Disadvantages of EVs

Of course, for some people, the financial cost of owning an EV has nothing to do with their decision either way. Attempting to live a more environmentally friendly lifestyle is a good enough reason to drive an EV for many people. However, even this purported benefit is not so straightforward. Believe it or not, EVs have their own environmental impacts.

Electricity Usage

EVs are not truly emissions free yet because coal is used to produce electricity. However, most countries are working to clean up their electric grids. Over the last decade in the United States, utilities have retired hundreds of coal plants and shifted their focus toward natural gas, wind, and solar. So, the production process behind EVs may get more and more eco-friendly over time as we continue to cut coal usage.

Battery Production

The batteries used in EVs are emissions-intensive to make. On top of that, the raw materials necessary for manufacturing these batteries can be problematic in a few environmental and social ways. The lithium-ion cells that power most EVs, and many other kinds of batteries, rely on raw materials such as cobalt, lithium, and rare earth elements.

Mining cobalt produces hazardous tailings and slags that can leach into the environment. Also, communities of people who live near cobalt mines are exposed to these same dangerous materials, not to mention those who work directly with the materials. According to the New York Times, as much as 70 percent of the world’s cobalt supply is mined in the Democratic Republic of Congo where many of the mines are unregulated. This means workers, including a lot of children, dig the metal from the earth using only hand tools at great risk to their health and safety.

Plus, manufacturing EVs is about 50 percent more water intensive than manufacturing gas-powered vehicles. This is because lithium used to make the batteries is often mined from salt flats in the Andean regions of Argentina, Bolivia, and Chile where they use large amounts of groundwater to pump out the brines. Critics of this practice suggest this lessens the amount of water available to Indigenous farmers and herders.

Another environmental concern is that extracting metals from their ores can cause harmful air pollution. It’s also worth noting that as more and more EVs become old enough to retire, more and more batteries need to be recycled properly to avoid excess waste. This isn’t always happening, although this process is expected to improve over time as well. Even bearing all that in mind, the New York Times states that “experts broadly agree that plug-in vehicles are a more climate-friendly option than traditional vehicles.”

Investing in EVs

For those who are already sold on EVs, and maybe even already have one of their own, another way to support the industry and its developing technologies is through investing. The most obvious way to do this is to buy the stock of EV companies. There are also more traditional automakers that are actively expanding into the EV market. Another option is to buy an exchange-traded fund that invests primarily in companies tied to EVs.

Thinking a little further outside of the box, some people choose to invest in companies that develop parts for EVs, such as those that make lithium-ion batteries or hydrogen fuel cell batteries. As EV usage increases, so will the demand for batteries, and manufacturers will likely benefit from this. Also, manufacturing companies like these often produce batteries that are used for other vehicles, or even electronics outside of the automotive industry, so investing in them offers portfolio exposure to EVs while maintaining diverse holdings.

There are always pros and cons to every decision and choosing whether to drive an EV is no exception. The same is true when considering adding EV-related companies to your stock portfolio. If you are interested in discussing this further, we encourage you to contact your financial advisor. We would be happy to help you assess the best ways to incorporate EVs into your life.