Should I go into debt to buy an electric vehicle?

Dear Umbra,

I want an electric vehicle but only make in the mid-$40,000s per year. Is it worth going $30,000 into debt myself for a few years, to help move the market much more aggressively?

–Borrowing Under YOLO Economic Rationale


Let’s put the “electric vehicle versus gas-powered car” debate aside for a moment and enjoy a “dad moment” in which we review some general adages of auto ownership. A car is an incredibly costly purchase that, for those living in areas not conveniently served by public transit, is also a necessary living expense. And if you must make that purchase you have three basic options: Buy new, buy used, or lease. EVs make this cost-savings calculation a bit more complex, but we’ll get to that in a minute.

Buying a car outright sounds satisfying, at the very least. But it comes at the price of monthly payments with tacked-on interest (unless you are able to purchase it outright, which is not the norm for something fresh off the lot). Leasing, on the other hand, means you have to return the car at the end of the lease term, potentially creating a never-ending string of leases. However, the monthly leasing payments are generally lower than paying off the same car note, allowing you to drive a vehicle that’s more expensive than you could afford outright.

There is a lot of advice out there on the buy versus lease debate — mostly from rich people who buy a lot of expensive things. Take this tidbit from oil magnate Jean Paul Getty: “If it appreciates, buy it; if it depreciates, lease it.” (For many years up until writing this column, I was sure that piece of wisdom was attributed to the rapper Birdman, but I stand sadly corrected.) Getty was mostly talking about large industrial expenses; drilling equipment, for example, depreciates because it wears down, whereas land and fossil fuel reserves tend to go up in value over time. However, this same wisdom has carried over to more modest purchases such as homes and cars — homes appreciate, cars depreciate. 

That’s an important distinction as you ponder your big EV splurge. It’s tempting, but incorrect, to think of a new vehicle as an investment. Even Jay-Z got it wrong early in his career. In the 1996 song “Can I Live,” the emerging rapper offered this perspective: “We don’t lease / we buy the whole car, as you should.” But 14 years later, an older, wiser, and richer Jay issued a correction to this claim. “Advising [fans] to buy a car rather than lease speaks to my naïveté at the time,” he wrote.

That’s because you will never sell a car, no matter how untouched and sparkling it might have been when you purchased it, for more than you bought it for. From the moment you drive it out of the dealership, a car begins to wear down, requiring repairs and accumulating scratches and scuffs. As cars age, their value decreases, and yet they only end up eating more money. Even in the case of trade-ins, a third of new car buyers roll over an average of $5,000 in debt from their last car (that they’re no longer driving!) into their new loan. The more you learn about this, the more unfair it feels that so many of us have to buy cars to get around!

Of course, plenty of people choose to buy new cars despite the financial drawbacks. Advertising is very powerful, after all, as is the American value of owning property. But for normal people, buying a new car only (maybe) makes sense if you plan on driving the same vehicle for many years and can afford the payments without having to take out a loan with lots of interest. 

When you don’t have Jay-Z money to work with, it does seem practical to buy a car that won’t be a huge burden on your finances — which brings us back to your situation, BUYER. As someone who makes around $45,000 a year, your salary is a little shy of the national median, but you’re right there around the middle. Still, I would describe a $30,000 purchase as burdensome at your current level of income. You could lease, as we discussed, but that would still be a significant monthly payment. I wonder why you feel you must bear so much of the weight of the American transition to electric vehicles on your own shoulders? 

Electric vehicles emit fewer carbon emissions than their combustion-engined counterparts — even in parts of the country where electricity is still sourced from burning fossil fuels, according to the Union of Concerned Scientists — but they are also more expensive. The electric version of one model of car, for example, can be 87 percent higher than its gas-powered equivalent. This is likely to change, as electric vehicles become more common and the cost of producing electric vehicles flattens out, but we do not live in the future.

I do hope you won’t take this the wrong way, but there are millions of Americans who would be much less financially stressed by making the switch from gas-powered to electric. What about Balthazar Getty, descendant of the eminently quotable Jean Paul himself? Surely he would be able to purchase Teslas for an entire city block of Los Angeles. And his fortune, of course, comes from fossil fuel extraction, which I’d argue gives him a greater ethical obligation to push the electric vehicle market than you have!

What I’m trying to say here, BUYER, is that the EV marketplace might not need you to sacrifice your credit score or vacation budget in the name of climate progress. About 2.5 percent of cars sold in the first quarter of 2021 were electric vehicles, which doesn’t sound like much, but it’s an increase of 44 percent from the year before, according to Cox Automotive. There is a lot of legislative pressure for automotive companies to go electric. California has announced that it will stop allowing the sale of gas-powered cars by 2035, and General Motors in turn committed to stop making gas-powered cars by 2035. Ford just released electric versions of its iconic Mustang and F-150 models, which are notorious for their gas-guzzling engines. The market is already being moved rather aggressively!

The size of your personal influence on the EV market, I regret to say, is infinitesimal — unless you are an actual social media influencer, in which case I have some questions about your annual salary. What would move the market even more aggressively would be meaningful government policy to make electric vehicles affordable for everyone, including those with modest salaries such as yourself.

There is in fact a federal tax credit for the purchase of electric vehicles, but my colleague Shannon Osaka dug into it a bit last month and found that it really only benefits those in a certain income bracket. Here’s why: The tax credit is worth $7,500, but you only get that full amount if your tax burden exceeds $7,500, which won’t be true unless your income exceeds $66,000. Otherwise, you just lose the difference between your tax bill and $7,500.

Now, I am operating under the assumption that you are looking for excuses not to go into debt by purchasing an EV. If, in fact, you are already dead set on it, there are various ways to get an electric vehicle that would put it more within your price range. Grist writer Maria Gallucci reported on a credit union in Seattle that offers electric vehicle loans, for example. 

And it’s always possible — preferable, even — to buy used! The secondhand EV market is smaller than the one for gas-powered cars, because electric vehicles have not yet been very widely adopted. One disadvantage of used EVs is that batteries are quite expensive to replace, and depending on the age of the car you will be getting one that’s already on the decline. That said, more and more new-ish electric cars are coming off their leases and entering the used market.

Might I recommend — a bit controversially, perhaps — the alternative of an electric bike? There are many sustainable cities experts who cringe at the massive electric vehicle push because a car-centric society is problematic for more reasons than the carbon emissions and air pollution — including the fact that, as we’ve covered, a reliable car is a huge cost to a household! Many short car trips are easily substituted with an e-bike, and you can find new ones for as little as $1,100

All this to say, BUYER, is you have plenty of options for reducing your own personal transportation footprint that won’t come with a stressful monthly bill. And it’s looking like within just a few years, a more affordable electric vehicle could be a reality! I admire your commitment to climate values very much, and I wish that people with more means than you have — and more political power than you have, most importantly! — would take on more of the responsibility for carbon emissions that you are claiming.



This story was originally published by Grist with the headline Should I go into debt to buy an electric vehicle? on Jun 3, 2021.