MY FAMILY WILL SOON be in the market for a new vehicle. With gas prices approaching $5 a gallon in California, my gut tells me that we should set our sights on a hybrid. Upon doing some math, however, I get a different answer.
I priced out a few different vehicles, including the Toyota Camry and the Honda CR-V. In both cases, you pay an all-in premium—including taxes—of about $4,500 to own a hybrid over a similarly equipped model with a conventional engine. As the Camry gets better gas mileage, I selected that vehicle to do some additional calculations.
A conventional Camry gets 34 miles per gallon (MPG) compared to an impressive 46 MPG for the hybrid model. Assuming the current California price per gallon of $4.50 holds, you’d need to drive about 130,000 miles to break even on the hybrid, given the premium price. Interestingly, this is about the same number of miles for which hybrid batteries carry a warranty. In other words, once you’ve broken even, you’ll likely incur several thousand dollars to replace the hybrid battery. The upshot: With a breakeven point of 130,000 miles, I don’t see the hybrid as a financially attractive option.
If fuel prices continue their ascent, however, the math could swing in favor of hybrids. For instance, if California prices hit $6.50 a gallon—which is conceivable given current inflationary pressures—you’d only need to drive 92,000 miles to break even with the hybrid and thereafter you’d pull ahead. While that’s quite a few miles, I know I’ll probably rack up that sort of mileage over the next five years.
One other factor to consider: If gas prices do rise, dealers will likely increase the premium on hybrid models. They know the math that folks like us—readers of HumbleDollar—are doing to determine if hybrid models are worth it, and there’s a chance they’ll stay a step ahead of us in their pricing.