Sunday, August 10, 2014

Is the Prius an economical choice?

Is the Prius actually economical? 

This post is a limited comparison of four cars – the Prius, Camry, Corolla, and Civic.   We consider two variables MSRP and lifetime fuel costs.

Question:

How do the net present value of total purchase costs and total fuel costs for these four cars vary?

Basic Information and Assumptions:

Key information on the four cars and mileage driven are presented in the Table below. 


Four Car Comparison Lifetime Purchase
and Fuel Costs
MSRP
MPG City
MPG HWAY
City Miles
HWAY Miles
Prius
$24,200
51
48
10000
5000
Camry
$22,235
25
35
10000
5000
Corolla
$16,800
30
42
10000
5000
Civic
$18,190
31
41
10000
5000


Key assumptions in the analysis: 

Car is bought with cash at price equal to MSRP.

The car is purchased and driven for 12 years.  At the end of 12 years all four cars have a value of $0.

The cost of capital is assumed to be 5%.

The price of gas is assumed to be $3.50 or $4.00.

Analysis:

We start by calculating annual fuel consumed by the four cars.   The procedure to calculate fuel consumption was explained in a previous post.





Basically, note that Miles/(Miles/Gallon) = Gallons.  Then gallons x $/gallon = dollars.



Annual Fuel Consumption for Four Cars
$ value of Fuel
Consumed at $3.50
$ Value of fuel
Consumed at $4.00
Prius
$1,051
$1,201
Camry
$1,900
$2,171
Corolla
$1,583
$1,810
Civic
$1,556
$1,778


Gas is put on a credit card and paid for at the end of each month.  The net present value of lifetime costs is the MSRP discounted at time 0 plus the discounted value of the gas purchases.


Methodological Note:  The net present value of the fuel costs over the twelve-year life of the care is calculated from the PV function in Excel where PV is a function of RATE, NPER, PAYM, FV, and TYPE

RATE=0.05/12,

NPER =144

PAYM= annual energy bill divided by 12

FV=0

Type=0 (end of month payments)


The present value of the cost of the car is the MSRP.



Results:

Present value calculations of purchase and fuel costs for the four cars are listed below.   The Civic and the Corolla are less expensive than the Prius.   The Camry is more expensive but of course the Camry is more car.


Purchase and Fuel Cost Comparisons for Four Cars
PV of Gas Costs at $3.50 gas
PV of Gas Costs at $4.00
PV of Cost of Car
NPV Total Gas at $3.5
PV Total Gas at $4.0
Prius
($9,468.31)
($10,820.93)
($24,200)
($33,668)
($35,021)
Camry
($17,119.15)
($19,564.74)
($22,235)
($39,354)
($41,800)
Corolla
($14,265.95)
($16,303.95)
($16,800)
($31,066)
($33,104)
Civic
($14,018.43)
($16,021.06)
($18,190)
($32,208)
($34,211)


Concluding thoughts:  The scenario presented in this post should be fairly favorable to the Prius – a long car life, a not totally outrageous cost of capital and fairly high miles driven and city miles driven per year.   Also, I do not correct for issues related to difference between EPA mileage testing and real on-road mileage results. 


Despite these favorable assumptions the non-hybrid Corolla and Civic appear to be more economical than the Prius.  

#Prius
#Civic
#Corolla
#Camry
#fuel efficiency

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