Why Hybrids Are Sometimes the Smarter Financial Choice Over EVs

Buying a new car can be like navigating the back streets of a big city. You'll have lots of decisions about which direction to take and a bunch of potholes to avoid. If you're choosing between a hybrid and an electric vehicle, those potholes can be both environmental and financial.

Electric vehicles have no tailpipe emissions. They might qualify for subsidies and cost slightly less to run than a hybrid. But they depreciate quickly and can cost a lot more to buy. On the other hand, hybrids tend to hold their value better and are often more affordable upfront.

There are a lot of moving parts to consider, so let's dive in to learn why hybrids are sometimes the smarter financial choice.

Hybrids vs. electric vehicles: Weighing the costs

Sales of electric vehicles have grown dramatically in recent years, but consumers continue to be concerned about range and charging networks, amongst other things. Hybrids bridge the gap. They are greener than gas cars and also remove some of the concerns about traveling long distances and finding places to charge.

Traditional hybrids use an electric motor with a gas engine, while plug-in hybrids can be fueled using gas or electricity. As Car and Driver put it, they work as "part-time electric vehicles." The cost breakdown is different for hybrids, plug-in hybrids, and EVs.

Upfront costs

If you're trying to choose between a hybrid and an EV, financing deals and tax credits can make a huge difference in the price you'll pay. On average, electric vehicles are more expensive, but so much depends on what car you buy and what kind of a deal you can get. If an electric vehicle costs $10,000 more than the hybrid you have your eye on, tax credits and other incentives could close that price gap.

Here are some ballpark figures to give you an idea:

Running costs

Last year, the AAA put the average annual cost of owning and operating a new car

at $12,182. That includes depreciation, car financing, fuel, insurance, license, registration, taxes, and maintenance. Electric vehicle owners save money on gas and running costs, but hybrids are cheaper in other areas. Depreciation is so important that it has its very own section below.

Here's how EVs, hybrids, and gas cars compare:

• Car financing: The APRs on some of the best auto loans are around 6% or more. Let's say you buy an EV that costs $10,000 more than, say, a hybrid, and you borrow that money. If we calculate a loan term of three years, you'd pay $300 a month and almost $1,000 in interest in total. Now, some EVs qualify for green auto loans with better terms. Even so, borrowing to buy a more expensive car will still cost you in interest.
• Gas costs: SolarReviews estimates electric cars are up to 70% cheaper than a gas car, and hybrids are 60% cheaper at best. Given that the average American family spends $5,000 on gas, per J.D. Power, that's a potential $3,500 saving for EVs and $3,000 for hybrids
• Insurance: Auto insurance is higher on hybrids and electric cars than on gas ones. Progressive says this is partly because the cars themselves cost more. The parts can also be more expensive and need specialist mechanics to fix them. Check out some of the best car insurance companies for deals on all types of car insurance.
• Maintenance: Electric cars come out ahead here. They don't have a traditional engine, so you can wave goodbye to oil changes, spark plug changes, and more. SolarReviews argues maintenance costs on an EV are $400 to $1,000 less than a gas car. Hybrid maintenance could actually cost more because you're essentially paying to maintain two engines.

Key takeaway: If you're calculating the cost of hybrids vs. electric cars, don't rely on generalized figures. Drill down and compare running costs for the specific models you might buy and your situation.

Depreciation

If there's one single reason to buy a hybrid over an electric vehicle it is this: Electric vehicles depreciate faster than a speeding train. According to a 2023 report from iSeeCars, on average, EVs lost 49.1% of their value in five years. Hybrids lost just 37.4% in the same period.

If you're spending, say, $40,000 on a new car, think about how much it might be worth when you want to trade it in. In this scenario, the EV might lose around $4,000 a year, while a hybrid might lose $3,000 -- a significant difference.

Bottom line

Electric vehicles aren't cheap, and EV gas and maintenance savings often won't be enough to offset the hefty upfront costs. Unless you can get the initial cost down through tax credits, financing deals, and dealer offers, hybrids will often be the smarter financial choice.

Electric vehicles may make sense if:

• You can pay for the car out of pocket
• You're willing to pay more for the environmental benefits
• You're buying a make and model that qualifies for the full federal tax credit

A hybrid may make sense if:

• You can't afford the higher EV price tag
• You make a lot of long trips
• You're worried about depreciation