At some point or another, every founder wants to discuss with you whether they should purchase their next car as an electric vehicle.
For most founders, this comes at a particularly good time: after receiving a large payment from a client or after the lease on their older sedan has ended.
The initial investment for an EV looks so much better than buying a traditional fuel-powered car (for lower fuel consumption, fewer moving parts, and tax benefits that already bring the purchase price down significantly).
But, as we’ve established, business owners are notoriously cost-conscious, or at least cash-flow conscious.
So, we should really be calculating the cost of owning an EV, not just the cost to buy.
In other words, we must include the total cost of an EV over the first 2 or 3 years or so of its life.
After all, this is the period of time in which a business owner has the greatest uncertainty regarding cash flow and therefore requires the greatest scrutiny of every expense to confirm that it’s not only affordable but also, perhaps most importantly, justifiable.
The Upfront Numbers Are Only Half the Story
Founders are used to thinking in terms of total cost of ownership for things like software, offices, and employees.
A car is just another thing that should be treated in the same manner.
You need to include the purchase price, any financing terms, the cost of charging, maintenance, and even insurance.
For starters, the maintenance on EVs is lower.
While you do have to change the tires from time to time, there is no need to change the oil, the brake pads are less likely to wear out thanks to regenerative braking, and there is no exhaust system to worry about.
Many first-time electric vehicle buyers are unpleasantly surprised by the higher insurance costs associated with electric vehicles compared to similar gasoline-powered cars.
This additional cost is due to the high cost of the battery pack in electric vehicles, as well as the current lack of repair shops that specialize in the repair of electric vehicles in many locations around the country.
Thus, before you sign up for a policy, you should obtain quotes for electric car insurance for the model you are considering as well as quotes for similar gasoline-powered cars, to get a sense of the additional cost.
This additional cost will likely not be fully offset by the lower fuel and maintenance costs of the electric car.
Thus, you should carefully consider this additional cost before you buy an electric vehicle, since it will be a recurring expense for as long as you own the car.
A single line item can throw off the entire calculation for the founder purchasing the vehicle for business purposes and trying to keep a sharp eye on the business’s recurring expenses.
Charging Costs Depend Entirely on Your Situation
When charging at home is available, then EVs are generally cheaper than cars with gasoline engines.
However, when a founder travels a lot, then charging at public fast-charging stations can be very expensive, even comparable to the price of gasoline per mile.
This is a reality check on the best-case scenario for where you charge your car most days.
Financing an EV Through the Business
EV depreciation has been inconsistent, and it generally depreciates faster than cars with internal combustion engines.
This is important to consider when financing a vehicle through a business and planning to sell or trade it in the future.
Shorter loan terms, or larger down payments than typical, can help to mitigate this type of risk.
A shorter term, or a larger down payment to bring the UP FRONT down to a lower number that better aligns with the other expenses of your young business, would serve to decrease your exposure to this sort of risk on a depreciating asset.
This would be more than adequate, given the already heavy loads that founders bear.
Tax Incentives Are Real, But Read the Fine Print
Yes, there are also federal incentives that can significantly reduce the effective price of an EV at the point of sale.
However, there are important differences in the eligibility rules for these incentives.
Incentives are based on income, vehicle price caps, and whether the purchase is for business or personal use.
Some incentives are now disbursed at the point of sale rather than at tax time. This makes a big difference in the immediate cash-flow implications of a purchase.
Note that these programs have changed in the past. So, it’s best to check the most up-to-date eligibility for purchases in the current year.
Also, the rules for personal vs. business use vary and can affect eligibility.
So Is It Worth It?
For many young business owners, an EV makes sense.
It’s not because EVs are good for the environment, or because they are the future of transportation. Like any business expense, it starts with a clear comparison of the total financing cost to that of other options. In addition, this includes an assessment of your charging needs. Other factors include the insurance cost for that model, and a best estimate of how well the car retains value. These are the key indicators that an EV is the best choice.
Treat your car purchase as you would any other business expense. And, do your research before you let the novelty of purchasing a new car cloud your judgment.
Approach the next car purchase the way you would any other business expense.
Treat it like a software subscription, office lease, or hiring of new employees.
Compute the total cost of EV ownership, and don’t allow your excitement for this innovation to cloud your judgment.
