What's the true incremental cost of driving a car?
What is the incremental cost of operating a car? It's not very well understood and here I hope to, together with readers, come to some better understanding of it.
Many sites calculate the "total cost of ownership" for cars. You can go to sites like Edmunds True Cost to Own or Kelly Blue Book Total Cost and they will calculate the total cost of owning a car for its first five years, not including parking. The cost drops as the car gets older, and these sites use average figures, so if you are a good driver, your insurance will probably be less. They tend to base it on driving the car 15,000 miles per year, though the average is only 12,000. (Newer cars, however, tend to get driven more in the early part of their life and less later on.)
You may also like the AAA cost analysis for different classes of cars, which calculated a cost of 59.2 cents for the average sedan, and much more for an SUV.
But it's tricky. While you'll spend that much per mile on owning a car, that's not the additional cost of driving an additional mile -- or operating an additional hour.
The additional mile adds the following costs:
- Your car depreciates -- it loses resale value as you add more miles to it. Around 11-20 cents per mile.
- Your maintenance schedule is based on miles, so you speed that up, at about 6 cents per mile. Your tires wear out at about 1 cent/mile depending on what type you have.
- Most insurance companies now offer different prices based on the miles you drive. While you may not be making use of that, liability and collision insurance really depend on miles, since you don't crash if you're not driving. Typical estimates are about 6 cents/mile. Metromile, a semi-pure "pay as you drive" company, advertises a price of $29/month plus 6 cents/mile.
- Of course you burn gasoline or electricity as you drive. Anywhere from 4 cents in an electric car to 8 cents in a Prius to 22 cents in a guzzling premium SUV. Or more.
- The more you wear out your car, the more repairs that get needed. Most repairs are under warranty in the first few years, but many are not, and none are after the warranty. A repair is anything you need to fix outside of schedule maintenance. Not counting any car accidents, which will add to the cost. Some things, like scratches and chips, are part of expected depreciation, but things beyond normal wear and tear cost you extra. Your interior is wearing out every hour you sit in it, as well.
- As noted, you pay for parking and tolls the more you travel, but that's wildly variable.
- Certain behaviours, like fast acceleration can put extra wear on cars, and on batteries. High speed charging puts extra wear on batteries. A highly degraded battery will reduce the value of an electric car far more than would be predicted from its mileage.
While the whole car pricing industry works on miles, because that's what we know, there's a strong argument that a lot of value loss should be measured in hours. Other vehicles, like boats and planes, are all aged in engine hours. This makes sense -- your car is actually wearing out a lot less going 60mph on the freeway than it does driving stop and go traffic in the city. It even uses less fuel per mile, if it's a gasoline car. The national average speed is around 40mph, which can be used as a very rough translation from miles to hours.
Your car is also costing you money just sitting there. It's depreciating every month, even if you don't drive it. There is a base price for insurance (including comprehensive insurance) that does not change with miles. You paid taxes when you got it and you pay a registration fee every year of a few hundred dollars. You've tied up money in the car and thus that money has a cost, even if you didn't get a car loan.
Yet you don't buy your car just to have it sit around. Every car buyer buys their car expecting it to serve them some base amount of miles. Their commute for example, and a few other things. It's only worth looking at incremental miles if you have a trip that definitely wasn't in the plan for the car, or you're comparing the cost of a drive to an alternative. When planning whether to buy a car or not, or looking at the economics of a business, you need to price miles to cover all the costs, even the monthly ones. When looking at a specific extra trip you didn't plan when you bought the car, you can look at the incremental cost.
There have been various attempts to calculate the incremental cost of miles. Barnes and Longworthy in 2004 calculated 15.3 cents/mile for cars, and 19.2 cents/SUVs. This did not include insurance or parking and was at $1.50/gallon fuel. They bumped the number to 19.1 cents for cars and 23.1 cents for urban driving. They added extra for poor pavement and rough driving. Professor Mallard-Ball (with whom I differed on whether robocars would circle around rather than park increased their estimate to 31 cents/mile for urban, but felt an electric car would be only 21 cents/mile.
Electric cars should cost less per mile to operate, and eventually to own. (Some would argue they already have gotten cheaper to own.) This depends on what they actually cost to maintain, and how much their batteries actually degrade and whether they can be recycled at higher value, among other things.
Mallard-Ball's 21 cents plus insurance and parking, or 27 cents/mile plus parking, might be taken as an experimental number. Or 37 cents for the gasoline sedan.
There are arguments for lower numbers. As I noted, not all insurance companies vary the cost greatly with miles driven, and none yet charge purely by the mile even though this makes sense. The price of gasoline and electricity varies a lot. Repair and maintenance costs for more modern electric vehicles may be much lower -- there are arguments that they will be, but data is still limited. Battery technology is also getting better.
As such, the web sites above might do well expressing car ownership in terms of a cost per month plus a cost per mile. If we look at AAA's 59 cents/mile for the average sedan, and it drives 15K miles/year, they are expressing the car ownership and operation as about $280 per month plus 37 cents/mile. The real cost per month would decline on a decay curve until the end of life for the vehicle, and the depreciation portion would also decline, but energy, insurance and maintenance would remain stable while repairs would increase -- in fact the end of life of the vehicle is generally the time when repair costs rise faster than depreciation slows, though it is also when the vehicle simply looks unacceptable or is too unreliable. There is also a new factor for robocars -- when their technology becomes obsolete and non-competitive, even if it still functions well.
This analysis alters some of my earlier examinations on the economics of some things, such as whether people will want to hire out their private robocars through taxi services. (Think UberX but you don't have to drive it.) It makes it more likely if those miles can be viewed as purely incremental. Of course, hiring out your car does more than wear it out, it also makes it unavailable to you, requiring you to either face inconvenience or hire back a robotaxi. (I suspect robotaxi companies that use private cars will offer you lower-cost robotaxi if they can't get your car back for you when you need it, possibly at a wash price. I still suspect that most use of private cars by robotaxi services will be during premium "surge" times when the rate they are willing to pay goes up. More examination of this math is needed.
Not so when running a professional taxi fleet. You must recover all costs, so your base or average price must cover that 59 cents/mile (or whatever the total cost divided by the total miles is.) You can charge some customers less if you charge other customers more, but unlike a personal car, a taxi wears out almost entirely with use. A typical taxi will drive 60,000-100,000 miles per year and be fully worn out in under 5 years with current lifetime engineering. Leaving your taxi idle is relatively inexpensive. This means there may be little point to using it at a lower rate off-peak compared to preserving it to serve more hours on-peak.