A friend of mine recently wanted to purchase a Hybrid car, with Toyota Prius being the obvious choice. His reasons for buying hybrid car were purely financial: He believed that a Hybrid car gives a lot of savings in terms of fuel cost, and that more than covers up for the high initial cost for hybrid car.

Related Article: Best Tips to Save Money when you Buy New Car

However, I had a different opinion. So, both of us ran into an argument over this. To validate that who is right, we decided to do the math. The results were shocking. Here are our calculations and findings about Hybrid Car Savings: (Like this article? Click here to be notified via email when a similar article is published)

We did a comparison between Toyota Corolla and Toyota Prius to see the fuel cost savings.

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We got quotes from Yahoo! Autos for both the cars in our area:

Price of Toyota Prius: $22,701
Price of Toyota Corolla: $16,611

So, the difference in price is: $6,090

Now, we assumed that the car is going to be driven around 15,000 miles per year. This is on the higher end for most of the commuters, but let’s still go with these figures ( I think my friend forced me to use these figures as he wanted to turn the analysis in favor of Prius).

Assuming 45 MPG for Prius, and 27 MPG for Corolla, yearly gallons for both cars came out to be:

Gallons Per Year for Prius = 15000/45 = 333
Gallons Per Year for Corolla: = 15000/27 = 554

Now, we didn’t know what are the fuel prices going to be in the future. So, we assumed multiple fuel prices to see how many years will it take us to recover the original additional cost of $6,090. That is summarized in the table below.

Gas Per Gallon $3 $4 $5 $6 $7 $8
Prius Fuel Cost
Per Year
$1,000 $1,333 $1,667 $2,000 $2,333 $2,667
Corolla Fuel Cost
Per Year
$1,667 $2,222 $2,778 $3,333 $3,889 $4,444
Prius Savings Per Year $667 $889 $1,111 $1,333 $1,556 $1,778
Years To Recover Cost* 9.1 6.9 5.5 4.6 3.9 3.4

(*Years to Recover Cost = Initial Cost of $6,090 / Savings Per Year)

My sense is that $5 is a good price to do comparison. So, even in that case, it would take more than 5 years just to recover the cost !! Of course, in this comparison we are ignoring the fact that Prius has a higher maintenance cost (because of the expensive battery pack) and it will incur higher interest, and higher loss of value because of high initial cost. So, that would further increase the break-even time.

(I had a feeling that Insurance cost for Prius would also be higher than Corolla. So, I took the insurance quotes from Netquote.com , but surprisingly, Insurance cost came out to be almost same for both the cars)

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All in all, the whole analysis clearly showed that it does not makes sense to buy a Hybrid car if you are only trying to save money on fuel costs. I think it would make sense to buy a hybrid car a few year down the line when fuel costs rise further, and Hybrid technology becomes cheaper. (Like this article? Click here to be notified via email when a similar article is published)

Meanwhile, my friend has bought a second-hand Corolla for $8,000 and saved a whole lot of money. I think he took a cue from this article: 10 Tips to Reduce Car Expenses.

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10 Responses so far.

  1. Joshua Wong says:

    Interesting analysis. I’ve always assumed that the hybrid was the smarter option (cost-wise) but didn’t do the math.

    You generally made the same assumptions I would have in trying to encompass the total cost of ownership.

  2. Ishan says:

    Hey Joshua – Thanks for stopping by. It took us a few hours on excel to work out the whole thing, but I was pleased with the analysis. The results, even though in line with my expectations, were still surprising for me.

  3. Anonymous says:

    That’s funny.. consumer reports did an actual, serious analysis of this and came up with different conclusions.

  4. Ishan says:

    Dear Anonymous: I am sure there would be some alternate analysis also around this whole thing. But I considered the costs that matter most to me, probably others might throw in some other factors as well. Nevertheless, I believe that Hybrid technology is still in its infancy, and the cost would start coming down drastically when this technology is more widely used. Till that time, my good old Dodge rocks :)

  5. yes, interesting indeed! i would agree that going hybrid costs more in the long run, but if you’re doing it for the environment also (or to be trendy) then it may work for some people.

    i’ll stay away from now ;) unless i win the lottery, in which case I’ll get the “hybrid” Escalade! big ballin’ baby…

  6. Ishan says:

    Hey J: Well said.. the hybrids to carry lot of “face value” and it is cool to be seen in them

    BTW, put me also down for the lottery.. I won’t mind winning a hybrid either ;)

  7. Mike says:

    Sorry, but a lot of your assumptions were off.

    The maintenance costs are actually less than for the Corolla, because the quality is a bit higher, plus you don’t have to change the oil or brake pads as often. But hybrids are often cared for by dealerships rather than by your local mechanics, offsetting some of that savings.

    Also, the battery and hybrid components are covered for 100 – 150K miles (depends on the state), which means your statement – “Prius has a higher maintenance cost (because of the expensive battery pack)” is way off.

    The initial cost is higher, leading to higher taxes etc…, but your re-sale value for a Prius is still a lot higher. If you are planning on selling your car in the first five years of ownership, it’s an important consideration.

    Your insurance costs may be lower, depends on which state you’re in. Some companies offer hybrid owners a 10% discount.

    Some states and cities offer hybrid car owners savings such as HOV access, free parking, tax breaks, preferred parking, etc… You need to check into your local laws.

    Fuel costs are only part of the story.

  8. Ishan says:

    Thanks for leaving detailed comment. I totally agree with all the points that you have mentioned. My analysis was just back of paper calculation, and was focused on fuel costs only. I did take into account Insurance cost, but they came out to be almost same (and not lower than Corolla). But that might just be per the rates in my state. Regarding battery warranty, it is indeed covered under manufacturer warranty. But as we know, there is always some fine print in there that might exclude a few items. And as you stated, this would have to be serviced by dealer in that case, which might entail huge costs.

    Of course, the luxuries like HOV access and tax breaks are a definite plus for hybrids.

  9. http://www.livingalmostlarge.com/2009/03/31/is-a-prius-worth-it/

    That’s where I asked this week if a Prius is worth it. Got lots of die hard Prius owners saying it is. It isn’t, but still, hey if it makes them feel better.

    A truly green person like myself carpools or rides the BUS or bikes. Secondly, a green person would buy a used car to reduce, reuse, recycle cars! Thus lowering the number of new cars purchased. And according to the EPA, the average miles driven is 12k/year by the average person because there are people like me who don’t really drive and those who drive 24k/year!

    Both of us only considered a comparison of a new car. What would happen if the person bought a used car? Then the time to break even would take even longer.

    Also realize that making these hybrid batteries are not good for the environment.

    Another factor is the if these people were truly green, they would live in a smaller home closer to work so they could commute less. That way their carbon footprint like myself (I live in a townhouse) is less.

  10. […] did a comparison between a Hybrid car, and a regular car in “Does it really makes sense to buy a Hybrid Car? […]

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