At one point or another, every founder wants to discuss with you whether they should buy their next car as an electric vehicle.
For most founders, this comes at a particularly good time: after receiving a large payment from a customer or after the lease on their old sedan ends.
The initial investment for an electric vehicle seems much better than buying a traditional fuel car (for lower fuel consumption, fewer moving parts and tax benefits that already lower the purchase price significantly).
But as we’ve established, business owners are notoriously cost-conscious, or at least cash flow-conscious.
So we should really calculate the cost of owning an electric vehicle, not just the cost of purchasing it.
In other words, you need to include the total cost of an EV over the first 2 or 3 years or so of its lifespan.
After all, this is the period when a business owner has the greatest uncertainty regarding their cash flow and therefore requires the greatest scrutiny of every expense to confirm that it is not only affordable but also, perhaps more importantly, justifiable.
Initial numbers are only half the story
Founders are accustomed to thinking in terms of total cost of ownership for things like software, office space, and employees.
A car is just another thing that should be treated the same way.
You must include the purchase price, any financing conditions, the cost of recharging, maintenance and even insurance.
For starters, electric vehicles require less maintenance.
Although you’ll need to change the tires every now and then, there’s no need to change the oil, the brake pads are less likely to wear thanks to regenerative braking, and there’s no exhaust system to worry about.
Many new electric vehicle buyers are unpleasantly surprised by the higher insurance costs associated with electric vehicles compared to similar gasoline-powered cars.
This additional cost is due to the high cost of the electric vehicle battery, as well as the current lack of repair shops specializing in electric vehicle repairs in many localities across the country.
So, before purchasing an insurance policy, you need to get quotes for electric car insurance for the model you’re considering as well as quotes for similar gas cars, to get an idea of the extra cost.
This additional cost will probably not be fully offset by the lower fuel and maintenance costs of the electric car.
So, you need to think carefully about this additional cost before purchasing an electric vehicle, since it will be a recurring expense for as long as you own the car.
A single line item can disrupt the entire calculus for the founder who is purchasing the vehicle for business purposes and trying to keep a close eye on the company’s activities. recurring expenses.
Charging costs depend entirely on your situation
When home charging is available, electric vehicles are generally less expensive than gasoline-powered cars.
However, when a founder travels a lot, charging at public fast chargers can be very expensive, even comparable to the price of gasoline per kilometer.
This is a best-case scenario reality check for where you charge your car most of the time.
Finance an EV via the company
Depreciation for electric vehicles has been inconsistent, and they generally depreciate faster than cars with an internal combustion engine.
This is important to consider when financing a vehicle through a company and considering selling or trading it in in the future.
Shorter loan conditionsor larger down payments than usual, can help mitigate this type of risk.
A shorter term, or a larger down payment to bring UP FRONT down to a lower number that better aligns with your startup’s other expenses, would serve to decrease your exposure to this type of risk on a depreciating asset.
This would be more than enough, given the already heavy burdens borne by the founders.
Tax incentives are real, but read the fine print
Yes, there are also federal incentives that can significantly reduce the effective price of an electric vehicle at the point of sale.
There are, however, significant differences in the eligibility rules for these incentives.
Incentives are based on income, vehicle price caps and whether the purchase is for business or personal use.
Some incentives are now paid at point of sale rather than at tax filing time. This makes a big difference in the immediate cash flow implications of a purchase.
Note that these programs have changed in the past. It is therefore best to check the most recent eligibility for purchases in the current year.
Additionally, rules regarding personal and business use vary and may affect eligibility.
So, is it worth it?
For many young business owners, an electric vehicle makes sense.
It’s not because electric vehicles are good for the environment or because they represent the future of transportation. Like any business expense, it starts with a clear comparison of the total financing cost to that of other options. Additionally, this includes an assessment of your charging needs. Other factors include the cost of insurance for this model and a better estimate of how the car holds its value. These are the key indicators that an electric vehicle is the best choice.
Treat your car purchase as you would any other business expense. And do your research before letting the novelty of buying a new car cloud your judgment.
Approach your next car purchase as you would any other business expense.
Treat it like a software subscription, office lease, or rental of a new employees.
Calculate the total cost of owning an electric vehicle and don’t let your enthusiasm for this innovation cloud your judgment.
