GM’s Volt: cost-benefit analysis

GM is claiming that its forthcoming electric car, the Volt, will do 230 mpg. Amazing, if true. But it will cost $40,000. Writing in The Atlantic, Daniel Indiviglio reported on some calculations to see how long he’d have to drive a Toyota Corolla before he’d have recouped the purchase price of the Volt.

The price difference in 2011 between the Volt and Corolla should be approximately $24,189. Next, I figured out how much it would cost to drive a mile in each car. That’s around 11.9 cents per mile for the Corolla and 1.3 cents per mile for the Volt. Thus, it’s around 10.6 cents more expensive per mile to drive the Corolla.

From this point, it’s pretty simple. Just divide the price difference by how much more per mile it costs to drive the Corolla. That tells us that you would need to drive the Volt approximately 229,000 miles before you break even for paying more to buy it.

Clearly, my methodology takes a few short cuts. Each year you drive the Volt, the price of gasoline may continue to increase. So the number would likely be a little less. For example, if you assume $4 per gallon, then you’d need to drive around 177,000 miles to break even.

There’s a little more help that Volt drivers will get — from Uncle Sam. There will be a government rebate of $7,500 available when you buy a Volt. That lowers its potential price tag to $32,500, reducing the difference in 2011 prices between the Volt and Corolla to $16,689. As a result, you would need to drive approximately 158,000 miles to break even, based on my other original assumptions.

158,000 miles is still a lot. Unless the price of gas truly skyrockets well past the $3 level after 2011, then the argument for purchasing a Volt will remain based more on environmental ethics than economics. That is unless you drive cars for a really, really long time.