Stress Test transcript: Gas prices are soaring. Are electric vehicles an affordable solution? – The Globe and Mail
You had your best-laid plans and then COVID-19 came along and hammered the entire economy. But you’ve got this – if you have the right information. Join Rob Carrick and Roma Luciw on Stress Test, a podcast guiding you through one of the biggest challenges your finances will ever face.
ROB: High inflation was already hurting Canadians’ wallets. Then gas prices spiked.
ROMA: Overnight, Instagram and TikTok feeds of babies, brunches and nights out switched to videos of gas pumps – with prices climbing higher and higher.
TIKTOK SOUND COMPILATION (34 seconds)
Can’t afford gasolina, too broke to buy gasolina/gas prices in Canada: SCREAM/I’m absolutely sick of hearing Canadians complain about the high gas prices. Get a fourth job if you’re worried about it. Or a masters in financial stability and an undergraduate in being a rich doctor. Or go spend $100K on an electric car if you want to save money. You know what I mean, there are options.
ROB: We know millennials are as big on car ownership as other generations, and that transportation is a big strain on the budget these days.
ROMA: Welcome to Stress Test, a personal finance podcast for Millennials and Gen Z.
ROB: I’m Rob Carrick, personal finance columnist at the Globe and Mail.
ROMA: And I’m Roma Luciw, personal finance editor.
ROB: Today we’re talking about cars, one of the most expensive purchases people make in their lives. With gas prices the way they are, we discuss whether now is a good time to buy an electric vehicle. Roma, how big of a deal are rising gas prices for you?
ROMA: Huge. Nothing made that more evident than a recent road trip we did. We have some friends that live in the U.S. and we decided to drive over there to visit them when the recent restrictions lifted. So over the course of the week, and we did do quite a bit of driving, we spent $400 for gas.
ROB: Ouch, that’s almost an airline ticket right there.
ROMA: It’s a huge amount of money, and what’s really notable is the increase. It’s vast from two years ago, and I’d suspect that’s where most people are feeling the pinch. Rob, what about you, how much driving do you do?
ROB: Not much, to be honest. A couple years ago we moved to a more urban location and we’re able to walk to a lot of stuff and we’re thankful for that. But we do drive from Ottawa where we live to Toronto where we have a lot of friends and family. The cost of that trip has probably come close to doubling in the last 12 to 18 months. It’s really striking when you fill up and you’re hitting numbers on the gas pump that I’ve never seen before. And when you walk up to the pump you’re seeing the previous guy’s fillup was like nothing you’ve ever seen before. I have seen $200 up on the pump and it’s just staggering. I don’t know how people are dealing with it. So EV, are you interested in an electric vehicle?
ROMA: I have to say flat out, I’m not a car person. I don’t spend a lot of time thinking about cars. I’m actually really curious to learn more about EV vehicles, and whether given the rise in gas prices, given how much vehicle prices are up because of you know supply chain issues and Covid and people returning back to driving. What about you?
ROB: Well I think our next vehicle will be some sort of electric vehicle, a hybrid most likely because we have a lot of highway driving to do and I don’t want to be stopping for three hours to charge a vehicle. But it’s definitely on my list. I am curious.
ROMA: We know there are some city-living Millennials and Gen Z who have other transit options and don’t want or need to buy a car. Some young adults are working on repaying debt and building their finances and they simply can’t afford their own vehicles.
ROB: But for those of you who need a car based on your location or life situation, there are big questions about how to lower costs and whether now is a good time to go electric. After the break, we speak with an automotive expert about this and more.
ROB: For a closer look at the Canadian vehicle market, the costs of ownership and the potential for electric, we spoke with automotive industry expert Robert Karwel at JD Power.
The first thing I want to dig into, Robert, is this common perception, and it’s been around for years that young people don’t own cars and have no interest in old cars, they’re sort of a post-car generation. Is that true?
ROBERT: Actually, no, it’s surprisingly, or not surprisingly to some people. If you look at the demographics of vehicle buyers in Canada, something really interesting happened two years ago, right? And that’s when millennials overtook boomers as sort of the largest demographic of people purchasing a new vehicle is not in Canada.
You can sort of see some of the reasons driving this and perhaps why these changes happened two years ago in 2020, Last year in 2021, COVID, people wanted, you know, safe, secure transportation, ready at their fingers, fingertips and vehicle ownership offers a lot of that. You twin that with, you know, life and with reality of younger people getting married, you know, starting families.
So I think in some respects, it’s not really surprising that you know, our lifestyles and how we live in the West has is encouraging private vehicle ownership among younger generations. And I don’t expect or think this will change anytime soon.
ROB: Let’s talk a bit about the cost of owning your car. What is the average cost of a vehicle right now, new and used?
ROBERT:I hesitated a bit here, just because it’s going up so quickly and so high. So, you know, I don’t want to come off sounding like a broken record because we do sound like we keep breaking through the vehicle price ceiling. But I’ll kind of level set it for everyone. Last year, total industry in Canada. You look at all makes and models and brands. You know, the average new vehicle costs about forty-two and a half thousand dollars. That’s up 13 percent from the year before, and it’s up about 20, just over 20 percent from two years ago.
And now we’ve all learned a pretty good basic lesson in economics 101 about supply and demand. During COVID, initial demand for vehicles fell off all of a sudden in early 2020. And then when things started to open up a little bit, there was a rush to acquire a new vehicle. And all of a sudden the manufacturers out there realized we’re going to run out the cars at this pace. So we have to start dialing back incentives. We do not need to incentivize consumers to buy cars. Now,, if you look at the use side of the equation, you know, typically for a lot of younger folks, I know for myself as well you, my first car was was a used car. They’ve gone up a lot in pricing as well, partially because of the shortage. So we’ve seen used cars now the average price of used cars in Canada is but $30000, and that is up 18 percent just so far in the first quarter of this year.
ROB: Let’s pivot to electric vehicles. When we talk about electric vehicles, what do we specifically mean? Because I know there are hybrids out there, there are plug-in electrics and there are electrical hybrids. How does it work?
ROBERT: At J.D. Power, you know, we use the broad category of new energy vehicles as a catchall. So that could be any combination of EV hybrid or plug-in hybrid. And I’ll break the situation there for you in Canada right now. If you’re looking at pure EV, if there’s no other powertrain motivation in the car that’s still just under two percent of the marketplace. Our data is exclusive of of Tesla just because of the way we collect data, but make an assumption to throw them in. You know, you’re still looking at about probably just under three percent of the marketplace. And then if you include hybrids and plug-in hybrids and any variation of the two, you’re at about nine percent of the Canadian market. So just under 10 percent are what we would call a new energy vehicle. And we’ve seen growth certainly in if it’s still a tiny fraction of the marketplace. You get the feeling that like a third of your neighbors are driving an EV. It’s not. It’s two percent of the marketplace. We are going in this direction. No one’s disputing that. We have to remind ourselves that this is a slow process. It’s going to take some time. And this is not yet mainstream technology. It’s on the cusp, but it’s just it’s almost there, but it’s two percent of the marketplace.
ROB: What kind of cost premium might I expect between an EV and a gas-powered or ICE vehicle? For listeners who aren’t familiar, ICE stands for internal combustion engine.
ROBERT: You’ve got to take it down to a segment level. So I’m just going to pick on the most popular segment in Canada, which is compact SUV, right vehicles like Honda CRV, Ford Focus, and Jeep Compass. They fall into the compact SUV segment. Your average ice-equipped compact SUV is about $38,000 cash transaction price and the electric’s about fifty-eight. So there’s nearly a $20000 difference between the two. So as a consumer, you have to think about this primary question do you want to save gas or do you want to save money? And how much you spend on your vehicle because those are actually two very different things. If you want to save money, it’s still to a consumer’s benefit to consider buying an ice-engined vehicle because the initial outlay is so much less. Yes, the operating costs will be higher for the time being, with the gas prices where they are right now and electricity prices where they are right now. But if the primary concern is about budget and obviously for a lot of millennials and Gen Z among all the other generations, budget’s always of paramount importance. You save more money by buying a traditional ice engine vehicle versus an electric at this point in time. We’re not saying there are reasons to buy EVs. Clearly, they are, but we just want to separate the kind of financial obligation for both of those.
ROB: Okay, Robert, I was out for a run early this morning and I saw the price of gas at a dollar seventy-six. How long does it take to recoup the higher cost of an electric vehicle over a gas vehicle?
ROBERT: So higher gas prices are shortening that window a little bit. Traditionally, over the last few years, we probably that the the the amount of time it would have taken to overtake the ice engine vehicle, and the TV starts to pay you back. You could have been in the 10-year range. And that’s going to start coming down right now if we consider that electricity prices are going to be held constant. So it’s still a substantial amount of time. Essentially, what we’re seeing with the EV market right now is that this is going to be a little bit of a watershed year. There are going to be many more competitors coming to market. And the way I describe it is that this is a coming wave. Waves will change the marketplace. They’re going to change the dynamic, but they come in slowly. It takes time for them to build. So essentially, it’s a message of we’re almost there. But just not yet. It’s still coming.
ROB:Young people are worried about the cost of owning a car, but they’re also concerned about the environment. Tell us a bit about where EVs fit into that concern. Is a hybrid environmentally friendly enough? Or does it have to be a full-on electric to really be a friend of the environment?
ROBERT: You know, that’s a great question. There are many things consumers can do, and younger consumers and first-time car buyers can do, remember that the first golden rule is to buy a smaller engine car period. You know, don’t buy a mid-size sport utility vehicle that seats seven if you don’t need it. Buy something like a Honda Civic, which is a compact segment car, is very efficient at what it does as a small engine doesn’t consume a lot of gas, and it is easy to purchase and acquire. on top of that, yes, stepping up to a hybrid is going to mean that you are burning less fuel. The purchase price of the vehicle is going to be a little bit higher, but not as much as going to a full EV. And then with the ful EV the obviously the environmental benefits of the fact that you’re not consuming any, any gasoline at all are high, but they still have to be sort of offset against the manufacturing of the battery, the chemistry, and the battery, the metallurgy that’s required for those vehicles. Obviously, it’s still of net benefit. But I always remind first-time car buyers is don’t discount the benefit you can do to the environment by considering a smaller class of vehicle, a lighter cost of the vehicle, class of vehicle for smaller engine because there are certainly environmental benefits to that too. So I would say maximum environmental benefits on the EV. But hybrids are a great solution. And you know, if you’re really budget-conscious, just buying a smaller, lighter vehicle will also help benefit that as well.
ROB: There’s a sense that EVs are an elite type of vehicle. You have to be very well off to afford one. And it’s not really something a young person would ever consider. Does the reality match up to that? Is the pricing so exclusive that young people cannot really consider getting it? Or do you see this being as something achievable by someone who is buying the first vehicle?
ROBERT:It’s something achievable. The big thing that’s changed kind of over the last actually just over the last year and a half with EVs is many more Canadians are willing to long term finance them. And we know there are issues with long-term financing. But because we see the proportion of EVs more often being sold with that type of financing package, I think it’s it’s starting to demonstrate that Canadians are putting more trust and faith in the technology. You’re OK financing this for eighty-four months and committing to the vehicle because you’re not going to experience any issues with a battery or the powertrain performance of the vehicle. And then when you open up that frontier that more people are accepting that they might finance it via eighty-four months? Well, then you start to chip away at the payment gap, right? And that now becomes more accessible. So, so I’d say, you know, right now, yes, most of the market is focused on higher-priced EVs. This technology is not just yet mainstream. We’re on the cusp of it, but it’s going to take a little bit of time. But we’re certainly making inroads with younger consumers who have more options than they’ve ever had before because in some of those segments like you mentioned, subcompact SUV, the Gap’s at its narrowest and with some of the financial instruments that are available, it can make ownership again a little bit easier. And we’re not going to pull the wool over anyone’s eyes. Yes, it still is more expensive, but consumers are choosing to make those choices right.
ROB: What do you think about the idea of leasing an EV if you have less upfront cost and in three years or four years you walk away and you jump right into a much newer, more up-to-date version of the same vehicle?
ROBERT: Absolutely. So you bring up a great point, Rob. I’ll just start because we talked about long-term financing. Reminder to everyone. Long-term financing is great, low APR is great, if you can commit to the vehicle. What you don’t want to be in is a situation where you’ve acquired a new vehicle, either long-term financing it, you just got married, you’re expecting kids. Oh, and now I have to get a different car and you’re now upside down because the value for the car is lower than the outstanding amount on the loan. What consumers can do, and the young Canadians can do is consider leasing. Because with leasing, while sometimes generally the APR, the interest rate will be a little bit higher, but you’re committing to a much shorter period of time, you’re 48 months, typically. We also see still see a lot. Thirty-six, even twenty-four to twenty-seven month contracts are available. It’s a shorter commitment and you have a little bit more ability to adjust your payment if you can commit to a lower mileage allotment on the contract. Understanding you’re not driving as much, you’re working from home or you have some hybrid work arrangement. And you still want the vehicle but it’s going to be sitting on the driveway perhaps more often than it was before covid. That’ll help you manage your payment and the monthly budget allowance.
ROB: Thanks, Robert. After the break, we speak with a Gen Z who recently bought an electric vehicle to SAVE money – and it’s working for him.
DOMINIC: My name is Dominic. I’m 24 years old and I live in Gatineau, Quebec. I work in automotive sales for new cars.
ROMA: For the record, Dominic doesn’t sell the brand of vehicle he bought. But definitely knows his cars, and uses his almost daily.
DOMINIC: The majority of the usage of my personal vehicle is definitely commuting to work. About 95 percent of the time, it’s a very short commute of about four or five kilometers each way. And the rest of the usage would maybe be one or two road trips every year with the vehicle.
ROMA: In April 2021, Dominic bought his first electric vehicle.
DOMINIC: So my electric vehicle is a 2021 Chevrolet Bolt EV. The sticker price was just about forty-seven thousand dollars. My previous vehicle was a 2020 Toyota Corolla hatchback. I paid thirty-one thousand dollars for the vehicle.
ROMA: A $16,000 price jump sounds steep. So you might be surprised that Dominic decided to go electric to save money.
DOMINIC: So what drew me the most was right about when the gas prices started to rise again in 2021 after all the time lows of 2020, I started to look at electric and hybrid options. However, in Quebec, residents get $13000 credits towards a new EV purchase. So applying that to the purchase price of the vehicle, then comparing it to the payments that I was making on my existing vehicle, the fact that I was putting gas once in every two weeks, it definitely made more sense to go for the electric vehicles since the gasoline savings were basically dropping my monthly vehicle expenses to below what I was paying for the gas car, and that was not even taking into account the maintenance costs of the vehicle.
ROMA: That’s right – his monthly payments are now cheaper.
DOMINIC: The decision to get an electric vehicle was mainly, first and foremost an economical one, as by the end of the month, once all the numbers, car payment, insurance, gas costs, maintenance, and maintenance costs are taken into account. The electric vehicle came out to be a little bit cheaper, as well as being comparatively equipped to my vehicle and a little bit less of a source of worries as there is less mechanical parts, there are fewer things to go wrong that I need to worry about.
When all was said and done and the final numbers were calculated, I would say the payment was no more than $12. The biweekly difference, then between when I was going to pay for the new vehicle versus what I was currently paying for my Toyota Corolla.
ROMA: Like most Canadians, Dominic financed his car so he didn’t have to clear out his bank account. But he benefited from a few factors that are VERY dependent on where he lives.
DOMINIC: For my situation, I was very lucky. There are a couple of electric car charging stations that were built into the parking lots of the apartment complex I live at. So I did not have to pay anything to charge the vehicle, install charging stations, or anything like that. But it is very rare to find apartment buildings that do have charging installed for the residents. So I did not have to pay anything for the charging. It is a standard two hundred and twenty-volt charger. So it’s about a full charge in I would say about eight hours.
ROMA: It can cost a couple thousand bucks to install an electric vehicle charger at home. If you live in a condo, you might not even have that option. On top of that, Quebec and BCresidents also benefit from a big provincial rebate for electric cars, as well as the federal one.
DOMINIC: So for a resident of Quebec, for example, the thirteen thousand dollars is split into eight thousand dollars from the province of Quebec and five thousand dollars from the federal government. So the federal government part can be done at the dealership without any forms being filled. They generally will take care of it for you on-site, and you won’t have to do anything about it. At least I did not. And that’s what everybody else seems to have said as well. For the provincial parts, I had to fill out a couple of pages on the internet, on the website dedicated to the rebates. But the dealership was able to deduct the price at the dealership and get the reimbursement for the credit in-store.
ROMA: With government incentives cutting the purchase price, it’s no surprise electric vehicles are most popular in Quebec and BC. But price isn’t the only concern people have about EVs. Many worry about battery life.
DOMINIC: I definitely did have my reserves about the durability of these vehicles until I started researching a little bit more seriously into them. Once I did, However, I quickly started to see that the batteries, especially in modern electric vehicles are actively cooled and heated with coolant similar to what you’d find in a normal gasoline engine. I quickly come to realize that there are cars that have 300, 400, and even five hundred thousand kilometers out there that have been used as taxis or shuttles, and the batteries are still holding up very well. They’ve had very little battery degradation. They’re still holding charges. They haven’t failed. And what a lot of people don’t really consider as well is that if a battery does die around, let’s say, four hundred five hundred thousand kilometers, a battery for an electric vehicle costs anywhere between, you know, ten to twenty thousand dollars for the most affordable models that you will find on the market today, replacing an engine, the transmission in a gasoline-powered car, which will probably have let go by that time. It’s just about as expensive, actually, but most people will never really even keep their cars to that point so they’ll never really get to experience how durable the EV is in the long run but i’ve met many people with very high mileage on their vehicles and i would say durability isn’t something to be worried about.
ROMA: Another worry is just how far the vehicles can travel on a single charge.
DOMINIC: The range I would get on a full charge really depends on your driving conditions, such as where you are driving at the time of the year you are driving. The best-case scenario would be summer in the city. You could easily push the model of the vehicle. I have up to about 490 kilometers.
Worst case scenario would probably be wintertime, the minus 20 Celsius and below and on the highway, you could see, is as low as two hundred and twenty kilometers on a single charge.
ROMA: That distance could be a problem for people living outside major cities who do a lot of highway driving. But it isn’t a problem for Dominic.
DOMINIC: Definitely I would say the range it’s very much OK for 99 percent of the time, but that one percent where you want to go for a long road trip, let’s say, you know you’re driving for eight hours. It definitely becomes more of a 12-hour drive because you have to budget that every recharge is going to take you at least 40 or 50 minutes to get back to 80 percent of that specific vehicle. So it does add quite a bit to the travel time, and it’s also a little bit, I would say, stressful knowing that you know you need to make it to your next charging stop and you need to make sure you always have enough electricity. I wouldn’t say it’s dramatically different than making sure your car has enough gas to get to the next place you’re going or the next station, but it’s definitely an adaptation period psychologically to make the switch that, OK, I don’t need to fill up gas anymore. I just need to fill up the electricity.
ROMA: As Dominic shifts his mindset to plug in instead of gas up, electric vehicles are starting to shift to a more economical choice instead of a pure luxury item. What does feel luxurious for Dominic is avoiding gas stations.
DOMINIC: My favorite part about owning an electric vehicle for a year now would be, I would have to say, the freedom of gas stations. It’s very nice knowing that I never have to worry about filling up the car. I never have to look at gas prices or worry about what’s going to go up, it’s going to go down. It’s also a lot simpler in maintenance. I don’t have to take time out of my days to book oil changes or maintenance or anything for the vehicle. It’s not a hassle. All it needs really are tire rotations, maybe once or twice a year. The quietness of the vehicle as well, it’s very, very quiet. Obviously, you don’t have an engine that’s making a bunch of noise and the power a lot of people don’t expect it to, but they are actually much more powerful and quicker than gasoline-powered cars, so it’s very enjoyable to drive.
ROMA: Like it or not, a vehicle is one of those big expenses that for many Canadians is a necessary evil. Leasing and buying a smaller car can help keep costs down, but electric vehicles seem to be getting more achievable. Dominic found a way to make an electric vehicle work. So Rob, is this feasible for most people, or are EVs still a luxury?
ROB: I think what we have to recognize is that the EV category is very broad and there’s a lot of different price points in there. For instance a hybrid might be surprisingly affordable for someone who’s looking to get into the EV market. Let’s not forget that if you’re concerned about high gas prices, there’s always the option of buying a small, fuel efficient little vehicle. Fun to drive. No, you’re not as high up as you are in an SUV, but you’re using a heckuva lot less gas.
ROMA: And one thing to keep in mind, and this is certainly the case for us, we live in a downtown area and we street park. So any kind of a plug in vehicle is going to be a stretch for us. As it will for many young people who are renters or who are moving regularly. So lots of reason why electric vehicles are still something that most people not able to do comfortably or easily. That said, we’re moving in that direction.
ROB: So here’s my takeaway. Most of us are going to be driving EVs in the future whether it’s to fight climate change or avoid high gas prices. But for now, EVs can be flat out expensive for young adults. Solution: drive the cheapest gas powered vehicle available right now and save for an EV down the line.
ROMA: Thank you for listening to Stress Test. This show was produced by Kyle Fulton, Emily Jackson and Zahra Khozema. Our executive producer is Kiran Rana. Thank you to Dominic and Robert Karwel for joining us this week.
ROB: Our audio at the top of the show comes from TikTok users @thehunterathome, @canada.bama and @jimmerplslikeme. Thanks for making us laugh.
ROMA: You can find Stress Test on Apple Podcasts, Google Play, Spotify or your favourite podcast app. If you liked this episode, please share it with a friend.
ROB: Next up on Stress Test. You’ve done all the “right” things: put money in your savings account, lived frugally. But you can’t shake the feeling that you’ll never get ahead in this world of sky-high housing costs and inflation. Is the Millennial middle class dead?
ROMA: Until then, find us at the Globe and Mail dot com. Thanks for listening.
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May 14, 2022 at 12:01PM