Which Is Better: an Electric Car or Hybrid?

Posted December 07 2016
by PenFed Team
woman sitting in driver's seat of car

Even with reasonable gas prices, the bill from your daily commute can be a big drain on your monthly budget. While there are plenty of ways to save, cost cutting measures will only get you so far. If you’re in the market for a new car and you are considering additional ways to save, you may be wondering, which is better: an electric car or a hybrid? Before you make the decision to buy, here’s what you need to know.

What’s the difference between electric cars and hybrids?

You know that a standard car powers itself with gas, but there are several different types of electric cars. When you start shopping, you’ll see standard hybrids, plug-in hybrids, and all-electric vehicles. This can be confusing to the uninitiated, but it’s pretty straightforward when you figure it out:

  • A standard hybrid has both a gasoline engine and an electric engine. It operates just like the gas-powered cars you’re used to, but switches from the gasoline engine to the electric engine when it makes sense to do so to save on gas usage. While an ordinary gas tank provides fuel for the gas engine, batteries (charged by the gas engine and by breaking) power the electric engine. This is a low-effort way to save on gas: the car is doing all the work and you don’t have to change your driving behavior.
  • A plug in-hybrid vehicle is basically a hybrid but with bigger batteries which allow it to operate in all-electric mode. The batteries are charged by plugging your car into an electrical outlet at home (though they’re becoming increasingly more common to find in parking lots in urban areas). When you’re running in all-electric mode, your gas use is cut to zero, but the car still has a gasoline engine that lets you keep going even if you run out of juice.
  • An all-electric vehicle skips the gasoline engine entirely. These vehicles are powered purely by an electric engine and must be plugged in to charge the batteries. This is great for your gas bill (now $0 per month) but the snag is that if you run out of battery life, you’re not going anywhere. Range anxiety is a real issue for electric car owners. If your battery runs dry you can’t just walk to the nearest gas station and buy a couple of gallons of gas to get going again. The good news is that many newer electric cars have driving ranges that last over 100 miles, which makes them more than adequate for a daily commute. However, if you’re the type of driver that enjoys taking off on long road trips, this may not be the vehicle for you.

What do these cars cost?

Prices vary wildly depending on make and model, but all hybrid and electric vehicles cost more than their gas-guzzling counterparts. The luxury, all-electric Tesla runs around $100,000, but you can find more affordable makes like the $25,000 Toyota Prius and the $33,000 Chevy Volt.

In general, you should expect lower prices for vehicles with less battery life. That means hybrids are the cheapest and all-electric cars (which need big batteries to give them a reasonable range) are the most expensive, with plug-in hybrids ranging in price somewhere between the two.

What about incentives?

Depending on the hybrid or electric vehicle you buy, you may be eligible for a federal tax credit. This can be great in helping to reduce your tax burden for the year, but keep in mind that you will not see a cent in savings until after you file your taxes.

There are also a variety of statewide incentives to consider as well. Some states offer their own tax credits, such as extending credit to cover the partial cost associated with purchasing and installing an electric charging system. Other states will even let hybrid owners enjoy the benefit of driving in the carpool lane, and some offer free metered parking for hybrids and electric vehicles. You’ll want to talk to your tax advisor to decide if an electric vehicle is a smart tax choice for you.

Before you make a final decision on which type of car you want to buy, take a look at the state and federal incentives that are available in your area for both plug-in hybrids and electric cars. You may be surprised by all the extra incentives offered in your state—which could ultimately make the up-front cost of your hybrid or electric car purchase a win-win for you in the end.

Are there any other costs?

Battery replacement costs. The biggest hidden cost of a hybrid is the battery. Just like a standard car battery, after a while these batteries will start to fail—and they’re a lot pricier to replace than your every-day car battery. While battery lifespan varies, you can expect to get at least 100,000 miles out of a battery. But when the battery goes, you can expect a few thousand dollars in replacement costs.

But don’t panic just yet. If your car is still under warranty, battery replacement is likely included (ask when you’re shopping around). And, while this sounds like a major expense, remember, there are plenty of pricey repairs that are associated with any car that has over 100,000 miles.

Electrical charging system. For plug-in hybrids or fully electric vehicles, you’ll also need a place to plug it in. (No, your car will not use a standard household outlet.) You’re likely to spend around $1,000 to buy and install one, another big up-front cost you don’t really want when you’re trying to save money.

Should I buy a hybrid or electric car?

Unfortunately there isn’t an easy answer here. A hybrid car can absolutely save you money, but if you don’t have the cash to buy these pricey models or don’t intend to keep your car for long, the long-term savings may not matter.

Just like any big purchase, our advice is to weigh the costs carefully before making a decision. Shop around to see which models are available in your area: gas, hybrid, and electric, then compare costs. If a hybrid or electric vehicle is in your budget and you’re planning on keeping the car long enough to reap the benefit of the long-term savings, then in the end, your purchase may be a smart choice in helping you trim down on your immediate monthly expenses.

Secure your auto financing with PenFed

Whatever your final choice may be, if you’re ready to buy, check out PenFed’s new and used auto financing.

Better yet, save time and money by shopping online with the PenFed Car Buying Service. You can search and sort online for the cars and features you’re looking for, quickly and easily—all with the use of your laptop, tablet, or mobile device.