## Monday, July 15, 2019

### Is the Prius an economical choice?

This post considers the economics of either spending more for an extremely fuel efficient hybrid car like the Prius or a bit less for a less standard car like the Civic, Corolla or Camry.

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.