I was reading
about the Toyota Highlander Hybrids. The identical hybrid version of the Highlander apparently costs $5,100 more. On the highway, the hybrid gets 27 mpg
versus 24 mpg
for the regular version -- a 12.5 percent improvement. For city driving, it looks as if the improvement is much larger 18 to 25 mpg -- a 38 percent improvement. Assume an average improvement of 25 percent. A couple of simple calculations indicate that this is unlikely to be a wise investment for most people. First some assumptions:
1) Own the car for 10 years
2) Put 150,000 miles on the car
3) 22 mpg average
4) $3.00 in current dollars
5) 3 percent real interest
Over the lifetime of the car you would buy 6,818 gallons. The present value of those purchases in today's dollars over those 10 years are as follows:
Year 1 $496.46
Year 2 $482.01
Year 3 $467.97
Year 4 $454.34
Year 5 $441.11
Year 6 $428.26
Year 7 $415.79
Year 8 $403.68
Year 9 $391.92
Year 10 $380.50
$4,362.04 versus a payment today of $5,100. You are about $738 poorer for buying the hybrid. The day that you buy the hybrid you might as well throw out $738.
There is one caveat regarding resale value for the car and how much being a hybrid would increase its value. I looked up the 1997 Toyota Tacoma Xtra Cab's trade-in value (the Highlander only started in 2001). If the truck is in good condition, the value would be $2,300
(again assuming a 3 percent real interest rate that is the equivalent of $1,711). Assuming that the hybrid equipment depreciates at the same rate as the rest of the car, that would leave you with $296 from the sale.
A final net loss of $442. I don't know about you, but I wouldn't want to throw away $442.
UPDATE: An important point has been raised in the comment section. The replacement costs
of the batteries in hybrids are very high. That link quotes Car and Driver saying that: ""battery replacement will cost $5,300 for the Toyota and Lexus hybrids, and the Ford Escape replacements run a whopping $7,200." These costs swamp the estimate that I have produced.