Irv’s Sheet: The Hybrid Premium Payoff

There’s been a great deal of talk recently about how cost-effective running a hybrid vehicle really is. The issue, it seems, is the amount of time required for the reduced cost of operation of a hybrid to pay off the vehicle’s price premium.

Vehicles with alternative powerplants like hybrids cost a bit more than do vehicles with standard engines. In addition to the usual gas engine, the Toyota Hybrid Synergy Drive powertrain also includes an electric motor, a special continuously variable transmission, a battery pack, a regenerative braking system and a lot of computing power to make it all work. Hence, the price premium.

But a hybrid saves you money because of superior fuel economy, so you spend less on gas, right? So how far must you drive before your mpg savings pay off that premium? It depends on the amount of the price premium (the price difference between a hybrid and a comparable non-hybrid), and on the price of gas.

Various studies that give a surprising spread of payback times are being circulated. In fact, one of these studies surfaced on the Today Show, on MSNBC, June 10. None of these numbers looked right. So we decided to crunch the numbers ourselves so that we could see what’s going on.

We started with three popular hybrid vehicles – the Prius, the Camry hybrid and the Highlander hybrid. To arrive at what we’ll call the "hybrid premium," we started with the True Market Value (TMV) prices of the base hybrids as calculated by the popular auto site Edmunds.com, using the numbers we found there last week. From that, we subtracted the TMV prices of equivalent non-hybrid vehicles. In the Prius’s case, we used a four-cylinder Camry SE, which in our line is the car closest to it in overall size; in the case of the Camry Hybrid, we used a four-cylinder Camry XLE, which is closest to the Camry hybrid in trim level; and in the case of the Highlander hybrid, we used a standard AWD V6 Highlander.

For the purposes of this calculation, we used the vehicles’ EPA-rated combined mpg figures, an average of 15,000 miles per year and per-gallon gas prices of $4.00, the current national average. We also ran the calculations using $4.40 per gallon. Here’s what we found:

The price premium for the Prius is $97, and at $4.00 per gallon, according to our calculations you’d get annual fuel savings of $1,096 and achieve payback in 0.1 year, or a little more than one month. At $4.40 per gallon, you’d save $1,205 per year and still achieve payback in 0.1 year. The premium for the Camry hybrid is $2,155, and at $4.00 per gallon, you’ll save $635 per year and achieve payback in 3.4 years. At $4.40 per gallon, you’d save $699 per year and achieve payback in 3.1 years. Finally, the premium for a Highlander hybrid is $7,052. At $4.00 per gallon, you’d save $850 per year and achieve payback in 8.3 years. At $4.40 per gallon, you’d save $936 and achieve payback in 7.5 years.

In the past, before fuel prices spiked, the payoff period wasn’t much of an issue, at least for some, because people bought hybrids like our Prius because of their perceived "green" character. Being "green," of course, is good. But saving money also is good. And if you can be "green" and save money at the same time, that’s the best of both worlds. It is, in fact, the world of Toyota’s Hybrid Synergy Drive. I just thought you should know.

- Irv Miller, Group Vice President, Corporate Communications

Comments

[Steve C]

I bought my 2007 Highlander Hybrid 4WD in October 2006. I've been asked why did I spend the extra money. I reply that I spent the extra money on "MPG insurance". The way I drive I get 10 miles per gallon better in city driving than I would with a regular V6 AWD Highlander. I do a lot of city driving. To me for the life of the vehicle I will always get 10 MPG better than the non-hybrid no matter what the cost of gas. I saw this as MPG insurance and am very glad I bought my Highlander Hybrid. I love it. It is a wonderful car and I regularly get 26 MPG in my city driving. If I baby it I can get a little higher. I hope Toyota introduces hybrid options for all their vehicles. If you drive a lot of city driving like I do, they are well worth the extra up front cost. Thanks Toyota!

[Paul Rivers]

The Prius (according to consumer reports) is 175 inches long. The Corolla is 179 inches long. The Camry is 189 inches long. OBVIOUSLY, the Prius, size-wise, would be fairly compared in size to the Corolla.

According the CarsDirect.com, the less expensive Prius costs around $22,160 in St. Paul, MN. A level-below-the-top-priced Toyota Corolla LE with an automatic transmission, electronic stability control, cruise control, remote keyless entry, the All Weather Guard package and all weather floor mats costs $18,304. A price difference of $3,856 - the Prius costing 21% more than the Corolla. With gas prices a $3,856 difference might be worth it, but that at least would be a fair comparison.

It's more reasonable that you chose the Camry v4 for comparison (rather than the v6), but I would expect most people to be comparing the Camry hybrid vs. the mid-trim-level Camry, not the top-end model. The kind of people who care about spending money on gas are often not the kind of people who spend extra money on...seat heaters, or whatever the XLE has over the mid-trim version...

Thanks.

[Gary]

"The Prius (according to consumer reports) is 175 inches long. The Corolla is 179 inches long. The Camry is 189 inches long. OBVIOUSLY, the Prius, size-wise, would be fairly compared in size to the Corolla."

If you compare the passenger cabin volume plus luggage space volume, the Prius is between the Corolla and Camry, but closer to the Camry.
The internal volumes are listed at www.fueleconomy.gov.

When we decided to buy a Prisu, I placed the hybrid premium at about $2k, which still seems about right to me.
For us, the Prius saves us 627 gallons a year compared to driving our Subaru Outback -- less than a one year payback at $4 per gallon.

[Gerald Moore]

We bought our Prius in April 2008, after comparing it with the Honda Civic Hybrid. I would think that you would compare the Prius with the Civic hybrid for payback comparison. Even tho the Civic, comparably equiped with my Prius, was about $3000 less, I still picked the Prius because of the fold down rear seats, more room and miles per gallon. The payback may be a slight bit longer, but it is worth it!