Cost of car ownership

One day, I had a brief conversation with a PhD student about the unexpected high cost of car repair, which can often go over $1,000 and even $2,000, regardless of how cheap your car is. Inspired by this conversation, I had a quick back-of-the-envelope calculation of how much I have saved by replacing a car with an e-bike.

This calculation surprised me, even though I thought I already fully appreciate the cost of car ownership, and reaffirmed that the decision of replacing my car with an e-bike was probably one of the most impactful and best financial decisions in my life.

People don’t see the true cost of car ownership

Here’s the quick calculation. I take the average number; The average cost of owning a car in the US is, according to AAA, roughly $12,000 per year or $1,000 per month¹. This may sound crazy. You may be confident that you are paying way less. But, remember that the car-related spending is usually what is the most underestimated by the drivers. We only pay attention to the fuel cost and we don’t usually pay attention to other cost like insurance, registration, tax, and depreciation.

Take a look at this video: Car ownership cost me a LOT of money. I’m done. He diligently collected most of the receipts and calculated how much he spent on his car. Although he got his car almost for free, he still had to spend at least $4k+ per year.

There are several reasons why we tend to not be able to fully grasp how much we are spending on cars. First, people often pay a big upfront cost, which they forget as time passes. It is also difficult to grasp the continuous loss of value due to the depreciation. Second, we strongly associate cost of driving to the cost of fuel, forgetting other items. Third, there are several things like repairs, registration, tax, etc., that are not regular/frequent enough that we take them as surprises rather than what’s totally expected for car ownership. There may be more reasons, but anyway, due to these reasons, we heavily heavily underestimate how much we spend on a car.

My case: calculation

I bought my e-bike in 2020 and sold an old car. If I followed the average American lifestyle, I could have purchased a new car instead. If we think about 5 years, I’d have spent about

$$ $12,000 \times 5 = $60,000 $$ to own a car. For an ebike, I’d use $100-$300/year. This includes depreciation, other equipments and accessaries, maintenance, etc. You may be wondering why this is so low given that some ebikes are $2,000+ or even approaching $10,000. I bought a pretty decent bike under $2,000 and sold it around half of that price. So, annualized depreciation is less than $200. You also don’t need lots of maintenance, just once or twice per year at less than $100 each time. The accessaries and other equipments are also cheap and don’t depreciate too much. I still use many of the accessaries that I bought. Finally, the price of “fuel” is simply too cheap to be meaningful (a few dollars per year). So, at the 5 year mark, with $200/yr, the total cost for an ebike is negligible, at around $1,000. So the difference would be

$$$60,000 - $1,000 \sim $59,000 $$

Two other totally normal things to do in the US: I could also have bought a car for my oldest as soon as they are old enough to drive.

$$ $59,000 + $12,000 \times 2 \sim $83,000 $$

If we had replaced the other old car with a shiny new car, we could have spent maybe additional $3,000 per year.

$$ $83,000 + $3,000 \times 5 \sim $98,000 $$

That’s $100,000 right there in 5 years!

Your car is costing you a million dollars

Compared to this, the cost of ebikes are practically free. I like to say that it is easy to switch to an ebike if you already own a car. That’s because the cost of purchasing an ebike (remember, you’ll still retain lots of its value after several years) is roughly a single major car repair or maintenance you need to routinely handle. The annualized cost of owning an ebike is roughly just a few tanks of gasoline. And then the cost of ebike “fuel” is just a few dollars per year!

$100,000 is a life-changing amount of money. This can mean being able to purchase a house or not; this can mean a fully-paid college vs. massive debt. If you invest the whole amount to an index fund (assuming 8%) for 30 years, it’ll grow to ~$1M!

In other words, choosing whether or not to own a car can literally make a million dollar difference when you retire. And, this difference can be made in just five years. What happens if we extrapolate this difference? After putting the initial $100,000 to work, if you forego the two cars (~$24,000) for 30 years, the difference will be about ~$4M!

Things that are not captured in the calculation

But even this conclusion is likely underestimating the difference. As you may know, cycling (bike commuting) is one of the healthiest habits you can have. It is an excellent low-impact aerobic exercise that keeps you healthy. Some people worry about not being able to exercise on an ebike, but that’s totally unnecessary concern because studies have shown that people with ebikes do roughly same amount of exercise as those with acoustic bikes. The primary reason is that, although ebikes are easier to ride, people ride them way more (because they are easier).

It is also not just about physical health, but mental health too. From my experience, I believe that bike commuting has enormous impact on mental health. Its ability to boost mood and “reset” the stress cannot be overstated.

A report estimates that the health benefits of switching to bike commuting is about $1,000-$2,000 per year, although I’m not entirely sure whether this captures the full benefits of being healthy and happy.

Finally, the impact on the safety of our streets (you’ll not going to kill someone or destroy buildings) and climate crisis are also enormous.

What this means for the cities

Conclusion

See also

• Car economics: an analysis by TechAltar