Will hybrid and electric vehicles be the answer to high oil prices? – Part 2

Moreover, the economy of scale is another problem, in terms of production and sales. Due to the lack of demand of such automobiles in the market, the automakers cannot produce the equipment on larger scale. Low sales also result in higher costs of such cars, let alone SUVs and crossovers.

The payback period of these cars—not in terms of lease and instalments but in terms of economy over a period of time—vary from brand to brand and company to company. Some EVs and hybrids make sense of purchase even in the eras of low oil prices, some make little sense at purchasing one even at $5 a barrel and some do not make any sense at all due to the premium of equipment and brand.

The car that makes sense to purchase at an oil price of $5 a barrel is the hybrid version of Ford’s Lincoln MKZ. Buyers pay no premium for the hybrid as it carries the same $34,755 Manufacturer’s Suggested Retail Price (MSRP) as the standard issue MKZ but the buyer receives higher fuel economy on the hybrid – 41 mpg city/36 mpg highway vs. 18 mpg city/27 mpg highway. Similarly, the Mercedes-Benz S400 Hybrid makes economic sense over the gas-powered S550 because the $91,850 MSRP for the hybrid is actually lower than the gas model by $2,700 dollars – usually the opposite is true – and the fuel economy is a bit better – 19 mpg city/25 mpg highway  for the hybrid versus 15 mpg city/25 mpg highway.

Some cars pay the premium on a relatively shorter period of time but mileage does not make sense because the difference is diminutive. The payback period on a hybrid Lexus LS 600h, which is priced over $100,000 versus the gas-powered Lexus LS 460 at about $75,000 is an outrageous 69 years because of the huge price differential between the two coupled with the only incremental fuel-economy improvement – 19 mpg city/23 mpg highway for the hybrid versus 16 mpg city/24 mpg highway for the gas model.

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Posted by Usman Khalid on Mar 6 2012. Filed under Automobiles. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.