Can We Do What Africa Does on EVs?

We may be closer than we think

Photo by Vander Films on Unsplash

Here is an interesting story from the last week or so that opens a new direction in imagining our future.

First, a company in Africa is exchanging gas-burning scooters and motorcycles for electric bikes and scooters. Here’s a link to the story.

This, if you ask me, is how to do it. What if a company in the industrialized nations where cars are rampant could do this, but with cars instead of scooters? Is there a way to make money getting people to trade in gas guzzlers for EVs? Maybe it is by the mechanism of making money on batteries, but either way, this is enticing.

Here’s how they are doing it:

“In Kenya, they will be offered 50,000 Kenyan shillings (about $344) – around a third of the price of a new electric bike – to swap their existing bike for an electric one. They can then pay a daily subscription of around 255 Kenyan shillings (about $2) which repays the outstanding balance and gives drivers access to battery-swap stations, where they can quickly switch out depleted batteries for fully charged ones.”

Better yet, they are making it work because of similar economics as those for EVs:

“A 2022 report from the FIA Foundation, an international transport and road safety charity, found that while the purchase price of electric motorcycles is currently greater than that of petrol-powered motorcycles, the operating costs are cheaper.”

Indeed, operating an EV is far less expensive than operating a gas-burning vehicle today.

Let’s say your car has died and you need a new car. The gas-burning SUV is $30,000 and the EV SUV is $40,000. You are going to purchase one or the other because you need a vehicle, but you are thinking to yourself: “Gee, that EV looks nice but it is so much more expensive!” And you are right — $10,000 is a lot more money.

But let’s think about this. Let’s assume you drive 1,000 miles per month, gas costs $4.00 a gallon, and your mileage is 25 mpg (the average). In this case, the gas-burning vehicle will cost you $157 in gasoline plus an average of $20 per month in oil changes (assuming one every 3 months or 3,000 miles) for a total monthly operating cost of $177. If you drive the same 1,000 miles per month in your EV with the cost of electricity at $0.15 per kwh and the vehicle you want to buy rated at 0.35 kwh per mile (the average), you can calculate your estimated monthly cost as $50.90. The EV costs $126 a month less to operate. Over the course of a year, you save $1,512.

Now, you may think, well, that’s not so much money. But consider this. You are going to buy one car or the other because you need a car, so $30,000 will be spent no matter what. The EV is, as we said, $10,000 more. That increment is the actual investment you are making to drive an EV instead of a gas-burning vehicle, and $1,512 of savings on a $10,000 investment is over 15% annual return, which is very good by any standard.

Here’s the kicker: For many people, 1,000 miles per month of driving isn’t very much. Many would say that 2,000 miles per month is more realistic. If that’s you, the savings double to over $3,000 per year, but the incremental investment is still $10,000. Now that investment is paying you a 30% return, and it goes on year after year.

Now, here’s the double kicker: If you buy a qualifying EV, you also qualify for the EV tax credit, which can be up to $7,500 on a new vehicle. According to new rules proposed by the Biden administration, that tax credit will be both refundable and it it can be accessed at the time of purchase, thereby eliminating the need to wait for tax time to get your money back. In essence, it is a subsidy. With you $10,000 incremental investment reduced to $2,500 by that tax credit, you are now saving $3,000 per year for an incremental investment of $3,000.

So maybe we do have a way of accomplishing a similar thing as the African bike exchange. Trade in your current vehicle and off load its payment. Claim the tax credit subsidy. Chances are that your new car payment will be equal or less than your monthly savings. Think about it.

Anthony