Hybrids aren’t economically feasible…yet

The Toyota Prius promises 48 miles per gallon using a hybrid of gas and electric engine. The advance technology allows it to achieve a much higher fuel efficiency. With the price of gas approaching $4.00 a gallon with no end in sight, sales to Prius’ have been rising. The reason for buying a Prius should be the desire to stick it to the Middle East and reduce gasoline consumption. However, it’s not a legitimate reason for saving money.

With some basic back of the envelop calculations (figuratively), the Prius is clearly not economically efficient. To make this determination, I took the base price of the Prius at $21,100 and the base price of the comparable vehicle, the Toyota Corolla at $15,250. The Prius is really just a fancy Corola. The difference: $5,850. That’s the “premium” you pay for sporting the “green” vehicle. Okay, gas is really expensive you say. It’ll pay for itself. Assuming that the average driver drives 12,000 miles a year and keeps the vehicle for five years, I found the following:

  • At $4 a gallon, you have to drive 114,763 miles to break even. Assuming you drive 12,000 miles a year, it’ll take 9.6 years of driving just to break even.
  • Assuming you keep the vehicle for five years, you have to drive 22,953 miles a year paying average gas of $4 a gallon. That’s a lot of driving, or about 63 miles a day, every day.
  • If you think gas will keep rising, it’ll have to go to $7.60 before you break even assuming you drive 12,000 miles a year for five years.

Given the results, to support the mass acceptance of the Prius, we’d have to see gas prices at $7.60 a gallon. From a policy standpoint, the government should subsidize the hybrid “premium” of $5,000 or tax gas an additional $3.60 to raise it to $7.60. Until either event occurs, or a mix of both, we’re not going to get mass adoption of hybrids.

Again, this analysis assumes that as demand rises, the economies of scale from mass producing hybrids won’t drive the price down.

Bottom Line:

Don’t buy the Prius to save money, buy it to feel good about yourself in that you’re reducing your gasoline consumption. Or, just recycle or ride a bike.

See my analysis spreadsheet (Google Docs).

Published by Daniel Hoang

Daniel Hoang is a visual leader, storyteller, and creative thinker. As an experienced management consultant, he believes in a big picture approach that includes strong project leadership, creative methods, change management, and strategic visioning. He uses a range of visual tools to communicate business challenges, solutions, and goals. His change strategy is to build "tribes" of supporters and evangelists to drive change in culture and organization. Daniel is an avid technologist and futurist and early adopter.

4 thoughts on “Hybrids aren’t economically feasible…yet

  1. True. If not for the massive savings, doing it to make a point is worth it. Future generations, less emissions, role model!…etc.

    And the technology in the Prius is just so neat (and bound to get better).

  2. @torbjornrive I agree. I totally support buying one to make a statement saying I'm conserving fuel for the future and being an overall good citizen. I don't support saying I'm buying a Prius to save on gas (well, you are but you'll never save enough to make up the cost difference.

    I also read somewhere that Honda will be developing more hybrids that will have ~$2,000 premium… at that level and these gas prices, it might actually make economic sense to do so.

  3. Just adding my two cents, here. The Prius doesn't work for your family, but I've figured out the the Prius is, in fact, economically feasible for mine. Right now, I drive a pricier vehicle/gas guzzler, which I just bought. When I realized that gas prices had doubled since I bought it, and I was only getting 16.5 mpg, I realized that something has to change. I can make an even swap with my van and another car I have for a Prius, no money actually out of my pocket, and I'm getting rid of a car I don't use. I drive about 7,800 miles a year, and if I get the lower mpg I've seen reported (around 40), I'll be spending $780 versus $1,890 for gas every year. I know that my circumstances aren't anywhere near normal, but we're talking an extra $100 a month in gas alone, not to mention another $125 in insurance from switching from insuring two cars to just one. People need to consider their individual situation very carefully (as you have done), because this car can be a winner sometimes.

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