Petrol vs Electric Cars

Unknown · 00:00Jase: Welcome to episode 276 of The Numbers Game. I'm Jase. I'm here with Nick. And Nick, first question for you. How are you finding fuel prices? Well, you know, you have a diesel?

Unknown · 00:11Nick: I have a diesel. You do? I have a diesel. Okay. I have a very efficient diesel and the tires are pumped right up and it doesn't have roof racks. So I'm flying, mate. Plus I live a 9-minute drive away from work.

Unknown · 00:26That is about to change. Put it in eco mode, just drive, you know, it's—

Unknown · 00:31Jase: Eco mode.

Unknown · 00:32Nick: I get 2 to 3 weeks out of my tank. But I did go away a few weeks ago, I had to fill it up and it was horrendous seeing what I was paying. So I'm thinking about getting an EV.

Unknown · 00:43Jase: Well, mate, you're in luck because I think we're going to have a little chat about EVs and the cost gap, which is around a— on fuel alone, it's a 10 to 1 cost gap of filling up, you know, your everyday standard car versus charging Yeah. So a couple of numbers here for you because we love numbers at The Numbers Game.

Unknown · 01:01The Ford Ranger, Australia's best-selling vehicle, costs an average of just under $0.22 per kilometer to run right now based on kind of average fuel prices of the last couple of weeks. The Tesla Model 3 costs $0.02 per kilometer to charge and run.

Unknown · 01:17Okay.

Unknown · 01:17Nick: So this is based on $3 diesel.

Unknown · 01:20Jase: Yep.

Unknown · 01:21Nick: Okay.

Unknown · 01:21Jase: Correct. $3 diesel. And then look at average fuel price has been $2.20, $2.50, kind of hovering up and down depending on what our orange friend over in the US has been up to. But so that, that 10-to-1 gap and there's, you know, several vehicles that kind of I can, I can showcase that on.

Unknown · 01:39But essentially what I want to go through is that one of the big parts of the EV consideration kind of started around July 2022. Is the fact that EV vehicles are exempt from fringe benefits tax. So if through your employer you would have novated lease salary package an EV, if you know you're an everyday employee looking for a new car, or if you're a business owner that needs to provide vehicles to your team, if you haven't considered EV as an option over the last couple of years, you've been

Unknown · 02:09missing out on some considerable tax savings, or the, I guess, the tax gap in the vehicles you do provide would be copping fringe benefits tax, or you should be paying it. Or if you've bought personally in your own name in after-tax dollars, there's a big gap in what you could have been saving.

Unknown · 02:25So essentially, Nick, what I want to talk to you about today is trying to convince you maybe, maybe you do need to get an EV or talk to Alicia about an EV. Greg and I have just convinced our significant others that we will be getting an EV. And, you know, the accountants in us wouldn't be true to us if we, if we hadn't done it.

Unknown · 02:42We've put the Tesla order in and up until April when we were looking at it, it was due for arrival in May. Pretty quick turnaround time. We waited one week to, you know, being accountants, we're conservative, so we checked our finances and made sure we're all approved for the salary packaging through, through the company.

Unknown · 03:00And within that one week back in April, a little bit earlier, might have been when the whole Strait of Hormuz and, you know, whatnot went down. And when we went back to officially click the order button there was a 200-something percent increase in orders across most EVs and our delivery date got pushed out to June or July.

Unknown · 03:20Nick: So it's not too bad.

Unknown · 03:21Jase: It's not bad. Not thrilled. I mean, Tesla's living the dream at the moment with everything going on.

Unknown · 03:25Nick: Think about the electricity you'll save over the next 2 or 3 months. Well, by not having an EV.

Unknown · 03:29Jase: I don't even know if I pay electricity. Case, if you're listening, can you make sure our electricity bill's paid? Because I haven't done that for some time. But looking at it, mate, I mean, look, is it something you've considered? Just out of curiosity. I mean, electric vehicle. You know, your thoughts, your general vibe in the past?

Unknown · 03:46Nick: I think, um, obviously it's all been, you know, it's under the microscope now because of the, um, the fuel prices.

Unknown · 03:53Jase: Yep.

Unknown · 03:54Nick: Uh, yeah, definitely have thought about it. Um, reasons I didn't: I really like cars. Um, I like to have a particular type of car. Um, I will say that first, but for me If you were to have an EV, maybe you have 2 cars in the family because, you know, you're going on a long trip.

Unknown · 04:16The reality is in most cars you can't get there. So then you've got to, you've got to charge it. That adds time to your trip. If you can, who knows, the charger could be 3 people deep. So that's always been a no for me. I don't want to be worried about that. The other thing is the resale value.

Unknown · 04:33Like if you buy the right car, it will have a decent resale value. There's a lot of, there's a lot of question marks over the batteries, but the cost to replace it, like, I don't even know. But the cost to replace the battery, all these other things you have to factor in. And then the tax, correct me if I'm wrong, but there is, there was a tax benefit apart from the fringe benefit one.

Unknown · 04:59There was some kind because you didn't pay the fuel excess levy.

Unknown · 05:03Jase: Yep. Fuel excise when you go to the bowser. Correct.

Unknown · 05:06Nick: But there is still a levy, right? Because I had someone say to me, oh, I thought I wouldn't pay this excess levy, but you'd still pay some kind of levy on an EV.

Unknown · 05:13Jase: Not sure about the levy. You might be talking about luxury car tax.

Unknown · 05:15Nick: No, no, no.

Unknown · 05:17Jase: So, uh, the charging levy, though, I don't know if that's been—

Unknown · 05:21Nick: No, there's something else. But I don't know. For me, the long distance—

Unknown · 05:25Jase: You like to hear your engine when you turn it on?

Unknown · 05:27Nick: No, no. Just the long distance thing was a killer. And the fact that it was probably gonna be worth next to nothing by the time the battery was dead. That's what I thought without doing too much investigation. But nowadays, you probably investigate more based on the cost gap.

Unknown · 05:44Jase: Yeah. Which is interesting 'cause the more I've looked into this now, I mean, the accountant rushed down the hill and did the FBT-exempt purchase without then thinking 5 years down the track from a resale point of view. And one of the things that I looked at was, or that I read, was like, it was like buying you know, the iPhone, the iPhone from 5 years ago, how long the battery lasts, you know, you know, what type of tech it comes with and how it feels versus 5 years later.

Unknown · 06:10It's a very similar iPhone. So, you know, your Tesla Model 3 from 5 years ago versus your Tesla, you know, newer Model 3 now. Same, same kind of-ish car, but the one from 5 years ago, the battery life is significantly worse off than what the brand new one today is on the upgrades in tech.

Unknown · 06:26So they kind of say. Yeah. So interesting point. So the point What this is, while there is a 10-to-1 gap on fuel price versus charge, what I want to unpack for you is when you work in resale value, FBT, cost of everything else over the lifetime, is EV still the winner from a cost point of view, or does it all come out in the wash?

Unknown · 06:49So essentially, why this, you know, why the mad growth and huge increase in the EV conversation at the moment? Petrol prices are up 37% since January. Diesel's up 70% since January. So your average monthly fuel bill for the average punter has gone from $150 a month to $250 a month.

Unknown · 07:09So, you know, when, when people are already doing it tough out there and there is inflation, that's obviously a significant amount of money that could have been going elsewhere. But the cost to charge the average EV, depending on similar miles, for the $150 to $250, it's about $60 a month if you're paying at fast chargers.

Unknown · 07:26So there's a bit of a tipping point for EVs there, just in straight average monthly cost alone. But then, as we touched on, when you go into the resale value, I mean, it blows my mind every time I get a tradie that's bought a Hilux and 5 years later they come to do their tax return.

Unknown · 07:43They've been depreciating the Hilux over the 5 years. It's worth— they bought it for $68,000 or $70,000. It's worth $25,000 on paper because it's been depreciated and they've got the tax benefit of claiming the deductions and they've gone and sold it for $55,000. $25,000 or $60,000 4 or 5 years later.

Unknown · 08:01And, you know, they're coming in going, I've done well here, you know, sold my car, got a new one, ready for a mad tax refund because of the deduction on the new vehicle. And I'm the unfortunate sod who's sitting there going, your car was worth $25,000 on paper. You've sold it for, let's say, $55,000.

Unknown · 08:17So it's easy. You've made a $30,000 gain when you sold your vehicle and you've got to pay tax on that. And your average rate of tax, call it 30 cents to the dollar, you're looking at a $9,000 additional tax to pay because you sold your car at a profit. Mate, the first time you have a conversation with someone who's made money on selling a car and they have to give that back to the ATO, oh, you don't, you don't want to be that accountant.

Unknown · 08:39It's not a nice place to be. So moving on though, the reality versus expectation for EVs on the resale is definitely the one that's kind of the, the biggest issue there. If you can move past that, obviously there's the numbers where each year in tax savings from a fringe benefits tax point of view, you've got thousands and thousands of dollars because you're using pre-tax dollars.

Unknown · 09:03So there's a, there's an increased value of the amount of money you can get out. The, on a $120,000 salary, the combined savings per year is $10,000 to $15,000 depending on the EV you buy. So just in that alone, if you work that out over 5 years, so that's a—

Unknown · 09:20Nick: can I just Go back step. So combined is tax less, lesser cost to run.

Unknown · 09:26Jase: Yeah.

Unknown · 09:26Nick: Combined. Yeah.

Unknown · 09:28Jase: Yeah, correct. So if I work back through all of those different savings, so where that all comes from, that's actually mostly tax and I'll give you the numbers. So on an SUV like a CX-5, a diesel ute like a Ford Ranger, and then the Model 3, when you run all of the different costs to run those vehicles over a 15,000-kilometre year, The D-MAX, the ute owner is usually spending about $3,500 to $4,000 in fuel per year.

Unknown · 09:55The EV owner spends $300 to $400, give or take. So over a 5-year period, that's up to $17,000 you save in fuel costs alone. Yep. That's before you've even touched on servicing, tyres and everything else. Generally with an EV, you're not paying regular service fees.

Unknown · 10:13You're not replacing the brakes as often. There's difference. You know, there's no oil to run the engine. So there's also considerable cost savings in that. Now, on the 5-year cost, when you work that out over 5 years, you've got $18,000 across the 5 years of fuel.

Unknown · 10:32Then you've got $7,000 over 5 years for insurance at $1,500 a year, $7,500 in all other running expenses. So kind of build that in. So you've got around $46,000 of additional expenses over that 5-year period.

Unknown · 10:50On the Model 3 or a Tesla, $65,000 driveaway, similar kind of cost to the Hilux that I was just referencing those ones for. Charging over 5 years, $1,500. No oil. Regenerative braking means brake pads last longer.

Unknown · 11:06Average insurance of $1,800 a year, comes in a little bit higher sometimes. You're looking at $10,000 of running costs over 5 years. Compared to the $46,000 to $54,000 over 5 years for a Hilux or similar vehicle.

Unknown · 11:21So that alone is a significant cost difference over 5 years just in running costs. And that's without the FBT savings on pre-tax dollars versus post-tax dollars.

Unknown · 11:32Nick: Then the numbers are great, but I think there's going to be a lot of people that drive EVs, but there's going to be a lot of people that wear Cotton On versus a lot of people that wear Caliber. So it's like, I totally get it. I think it's great, but I don't think it's going to change the Hilux drivers personally.

Unknown · 11:53I don't think it's going to change their decision. Maybe. Did you know what I mean? No, I got a nice colored shirt on.

Unknown · 11:59Jase: I do.

Unknown · 11:59Nick: And you choose to do that instead of spending $30 of cotton on.

Unknown · 12:03Jase: Yeah, but I'm going to get a Tesla to outweigh the costs of the petrol. No, no, I'm just kidding. No, no, I hear you. And it's absolutely smack bang on. And this is then where You then, where you undo all those savings and look, the numbers here do show that the EV in tax savings and FBT savings and running cost savings comes out ahead tens of thousands over the period.

Unknown · 12:25Even when you then add back the selling price of the vehicle. Now a Hilux versus a Model 3, Hilux have great resale value. Yeah. So even if you bought it for $68,000 and sold it for $40,000 to $50,000 depending on the price in 5 years. Your Model 3, you're getting nowhere near that resale value.

Unknown · 12:43You're looking at usually a third or less after 5 years. So $65,000 down to $20,000, give or take. Again, you've spent $55,000 to run the Hilux versus $30,000 to run the EV. Yeah. Over that period of time. So it balances out.

Unknown · 12:58So you got to look out after that 5 years. You're going to keep the car, you're going to sell it. What happens after that? The end result, though, even with all of this and what you're spot on about is I can talk about EVs. Being great for tax. There are still the considerations here in Australia that we have a ginormous country and we do love to get into our own backyard.

Unknown · 13:17Um, I was driving back from Berrima, went from Melbourne to Berrima or Barrell. It's kind of an hour out of Sydney, hour and a half out of Sydney, about an 8-hour trip up. I would have had to have stopped somewhere, found myself a charger. There was many that were out of order when I stopped and did a bit of research on the way and had a look.

Unknown · 13:34And then when I did finally find a service station that had Tesla charger or fast chargers, the line was up to a 5-hour wait to access a fast charger versus about 15-20 minutes for to get to the petrol pump. It was busy, really busy.

Unknown · 13:50So again, that was on the Easter long weekend. But you think about that at the moment and go, if we've just had a 300% increase in EV orders and we've got, you know, the numbers around 62% of Australians said no to an EV earlier this year.

Unknown · 14:06In a survey. Now, those numbers have changed. A couple of years ago, it was about 70— I think it was 84% of people said no to an EV, the same survey a year or two earlier. So the EV numbers are growing in a sense of people's appetite for potentially buying one.

Unknown · 14:25But it's once you then consider buying it, like myself up on that trip, I sat there going, oh, it's really going to change my habits and routines around You know, even Casey, if you are listening, I got in the car the other day and there was like fuel emergency light was on.

Unknown · 14:41I had like 15 kilometres to get to the petrol station. Now, if I had to get to a charger and then it was out of order, I do not want to be running out of battery on the side of the road as opposed to, you know, again, same thing can happen with petrol, but they will change though.

Unknown · 14:57And that's it. It's— there's a bit of a time game at the moment. What I fear as well, though, is that this huge increase in EVs, we've just recently episode that came out would have been on productivity of our government and what they're doing about the surplus and government spend.

Unknown · 15:13If they run the numbers on how much tax revenue they missed out on through the EBT, the EV exemption through fringe benefits tax. Yeah, I do wonder what point does this turn around in the coming years where the benefits of EVs at the moment is stacking up in the money you lose on the resale value you've saved in pre-tax dollars, FBT exemption, you know, costs along the way.

Unknown · 15:37If they remove all that and you go back to paying the full whack of fringe benefits tax or they bring out the electric vehicle surcharge or road excise, like what we pay with our fuel, all of a sudden, you know, why would anyone come here and invest in more EV chargers and more, you know?

Unknown · 15:57Nick: Yeah.

Unknown · 15:59Jase: So, there's still question marks around it. So, for the right family or the right people, it makes sense. You're not doing long trips, you know.

Unknown · 16:06Nick: Well, I think like, you think that most families are two-car families. Families. That's just the reality. You've got a family with 3 kids. Someone's going to work, someone— well, maybe 2 are going to work. Someone's going to the basketball, someone's going to the footy on the weekend. So most families have 2 cars in today's day and age if they live in the suburbs and not in around the city.

Unknown · 16:28Jase: Yeah.

Unknown · 16:28Nick: So it makes sense to have a maybe a petrol car or at least a hybrid that has— and from what I understand, most good hybrids now you can get sort of 80 to 90 km in and around the town, in and around town on a, on battery charge.

Unknown · 16:44So I think the one I was talking about to someone on the weekend was the Volvo XC60. They said they get about 70 or 80 km without using petrol. So all of your running around during the day, you can do that with no petrol.

Unknown · 17:00Yeah, but then you've got the option for petrol if you want to go a long distance. And they actually gave me the example of— and it was the Volvo— of a Warrnambool trip they had recently. And what it will do, it will balance the battery charge with petrol.

Unknown · 17:17So it'll basically work out— I hope I've got this right— if Warrnambool's whatever it is, 350 km, it'll work out the minimal amount of petrol it can use to get you to Warrnambool. By balancing the battery. So you save a lot of money.

Unknown · 17:34Jase: Yeah.

Unknown · 17:34Nick: So I think where it makes sense for me is, okay, you have a car that's got fuel option if you would like going on long distances, but if you're buzzing around town and you can charge it every night at home, you don't require to do it quick, then having a hybrid or a fuel car, full fuel car plus an EV, I think that's where a lot of people will go.

Unknown · 17:54Jase: Yeah. When you got $0.02 per litre versus $0.20 a litre, it's quite an appealing So the fringe benefits tax.

Unknown · 18:00Nick: Yep. Can you just maybe briefly explain that? So is that only available to employees? Like if I'm a sole trader business owner, will I have to be running a company and pay myself a salary? And then how does that work?

Unknown · 18:16Is that available to everyone?

Unknown · 18:18Jase: Yeah, so it definitely helps when you salary package as an employee. So your pre-tax dollars come out that way, but essentially then providing the car through a company or a trust to a working director or working person through those structures as well. You don't have to be on a wage for that to work out because it just means you're not paying fringe benefits tax on the benefit of that vehicle being owned by the company and provided to the employee.

Unknown · 18:41And then think about it like the GST refund. You buy a $77,000 EV through a company or a trust, you get the $7,000 GST refund or whatever you worked out through that. So there are considerable benefits. I mean, if you look up salary packaging, novated lease, if you are an employee or if you are a business owner, talk to your accountant about how to make that, pull that off and get those savings.

Unknown · 19:05Any other questions on that?

Unknown · 19:08Nick: So the only one that, only entity that couldn't do it is a sole trader. If you're a sole trader, you couldn't do it.

Unknown · 19:13Jase: Sole trader just means as well. So if you're a sole trader and you buy a vehicle to use as a sole trader under you, the individual ABN. What you would have to do to be able to work out your claims through the sole trader would be your logbook, your logbook percentage, and then whatever's the private component of that wouldn't be deductible for tax.

Unknown · 19:31Essentially, because your vehicle is FBT exempt, the sole trader isn't copping a fringe benefits tax because their individual tax rate is as high as 47%.

Unknown · 19:42Nick: Yeah.

Unknown · 19:43Jase: Where the family trust and companies have to make sure the FBT levels the playing field is because they're taxed at 25% or you're funneling money out to different tax rates through a family trust. So FBT is essentially designed to stop people getting a benefit through those structures compared to others that pay as high as 47% being the sole trader.

Unknown · 20:04Yeah. So yeah, so the FBT is not your sole trader kind of friendly saving. Yeah. But you know, likewise, I think anyone who's a sole trader who's proven the concept of their business and earns, you know, revenue over 6 figures or profit more than $80,000, $90,000, probably time to consider a family trust or a company anyway.

Unknown · 20:25Nick: You're clearly a pro-EV and you've made the decision to buy one.

Unknown · 20:29Jase: Yep.

Unknown · 20:31Nick: But hypothetically, anyone who listened to episode 275 of The Numbers Game.

Unknown · 20:37Jase: Productivity, yep.

Unknown · 20:37Nick: Yep. We talked about the government taking more money off us.

Unknown · 20:41Jase: Yep.

Unknown · 20:41Nick: So, hypothetically, the government comes out— clearly they don't care about people making decisions based on policies around 12 months ago. If the government came out and got rid of the FBT exemption, would you still buy an EV?

Unknown · 20:59And that's the thing that worries me, particularly if you're making a decision based on an exemption from the government, particularly at the moment.

Unknown · 21:08Jase: Big risk, isn't it?

Unknown · 21:09Nick: As risky if that's what you're basing your decision on. So if the FBT wasn't there, that benefit, would you still buy an EV? And, and I'll throw in one more thing. Australia, Hamas opens again and fuel prices drop back to where they were.

Unknown · 21:26Jase: Yeah, I, I would seriously consider it differently. I still think there's enough in it at the moment. Yeah, I would seriously consider. I mean, as I touched on, $55,000 out of pocket to run a petrol car and everything else versus $30,000 out of pocket, there's still a $20,000 roughly dollar saving on a 15,000 kilometre per year driver.

Unknown · 21:47Nick: Yeah.

Unknown · 21:47Jase: Depending on the car. I think realistically, it is running and understanding all those numbers. You know, we've got accountants that are doing tax planning with our clients at the moment. And when they're saying, what else can I do to, you know, get a tax benefit or, you know, have more money in my pocket? And one of them is, sell your car at a profit if you can, buy the EV, which is FBT exempt, and you're going to end up with more money over the next 5 years if you wanted cash in your pocket.

Unknown · 22:11Now, again, always got to come with the asterisk that the government can make changes. And, you know, they often do that. They take away things that, you know, they said they wouldn't touch super and there's changes in super all the time. Negative gearing, capital gains. Consider the numbers, consider your personal circumstances.

Unknown · 22:28One of the things there was like towing. You know, if you need to tow something, if you're a family with a caravan, you know, you're likely going to be with your diesel, diesel kind of towing rig. If you don't have charging infrastructure, you're not in a metro area, you're probably not considering EV that much anyway. So my answer is it changes, I think, more.

Unknown · 22:45I'll have to dig deeper into the research. But right now, while there is the FBT exemption, it's, it's juicy and too much of a drawcard to not consider it.

Unknown · 22:56Nick: $3 for a litre of diesel, maybe more.

Unknown · 22:58Jase: Correct.

Unknown · 22:59Nick: So it's, yeah, I guess the message there is you really need to do your numbers for your own personal circumstance. But whilst the fuel price is the headline, the FBT exemption is where the real cash is. Game over.

Unknown · 23:16Jase: This podcast is for educational and informational purposes only. The conversations are of a general nature and do not qualify as financial or tax advice. We recommend before you make any financial decisions, consult a licensed professional. Individuals on the podcast may hold positions in the companies discussed. ---