Are plug-in hybrids cost-effective?

Where did it all go wrong for plug-in hybrids? They've been promoted as a valid response to climate change and they promised to neutralise range anxiety long before battery-electric vehicles could make the same promise.

Yet plug-ins no longer get the sort of press they once did. Maybe that's because the purchase price is simply too expensive. And the whole extended-range concept has fallen flat on its face now that many battery-electric vehicles are offering over 300km of range on one battery charge. The BEVs also cost less to service to offset their higher prices.

To illustrate how plug-in hybrids have failed to fire up the market, take the Holden Volt. Priced over $60,000 on debut it was $40,000 higher than the similarly-sized Holden Cruze. Its much vaunted fuel efficiency didn't pan out in real life either, as we found when we tried driving the Volt from Sydney to Melbourne.

The plug-in Holden averaged 5.2L/100km, which was no better than the figure of 4.9L/100km achieved by the third-generation Toyota Prius we ran from Sydney to Melbourne. And while the Prius is a hybrid, it's no plug-in. At the time it would cost a buyer $53,500 to get into a Prius i-Tech, but 10 years on the flagship Prius is nearly $10,000 cheaper.

If only plug-ins had fallen in price at the same rate...

In marked contrast with the Volt, the BMW X5 xDrive40e four years later was priced much closer to the diesel ('xDrive30d') version of the X5. And in a driving environment that suited it, the plug-in X5 could complete a 20km commute from work on a full battery charge without cranking up the petrol engine until around a kilometre or so from the destination. The fuel used for that brief trip was no more than 0.7L/100km.

With judicious use of the right foot, the Porsche Panamera S E-Hybrid could complete that same 20km commute without firing up the petrol V6 at all. And the Panamera was priced around $10,000 more than the conventional Panamera S – $296,900 for the plug-in, $287,100 for the conventional V6 model. Being a Porsche, the Panamera was one plug-in that was actually reasonably nice to drive as well.

The same thing could also be said of the plug-in BMW X5. Perhaps that's the appeal of plug-in hybrids. They're clean running and CO2-free in the city and suburbs, but fun to drive in the traditional internal-combustion way at the weekend – with the added benefit of a decent range.

For both those vehicles, higher prices and meatier profit margins provided an opportunity for the respective importers to price the plug-in models closer to the conventional counterparts.

But with the prices of Toyota hybrids fast closing in on the prices of conventional cars, it's the premium for plug-in hybrids that remains a hurdle for buyers in volume-selling market segments. To be sure, plug-ins are coming down in price, but not fast enough. In fact, the latest plug-in variants of Porsche's Panamera and Cayenne appear to have risen in price, relative to the conventional V6 models on which they're based.

At what point does a plug-in hybrid make sense, in terms of price, market position and total cost of ownership? We decided to run the tape measure over three plug-in hybrid SUVs – from volume-selling, prestige and semi-prestige brands.

Each vehicle has been compared against a conventional counterpart for pricing and running costs (fuel consumption and electricity consumption only) to establish how each model of plug-in hybrid rates against the non-electrified version.

For the sake of consistency, we've worked out the final cost based on a five-year term, the official ADR fuel consumption figures and a nominal electrical power usage rate (as per the Green Vehicle Guide for each vehicle at a tariff of 28 cents per kilowatt-hour.

Mitsubishi Outlander PHEV Exceed
Purchase price: $53,990
Official combined-cycle fuel consumption: 1.7L/100km
Fuel cost over five years at 20,000km a year: $1700
Electricity cost over five years at 20,000km a year: $3640
Combined cost over five years: $60,180

Mitsubishi Outlander Exceed (diesel)
Purchase price: $45,790
Official combined-cycle fuel consumption: 6.2L/100km
Fuel cost over five years at 20,000km a year: $9300
Combined cost over five years: $55,090

Mitsubishi Outlander Exceed (petrol)
Purchase price: $42,290
Official combined-cycle fuel consumption: 7.2L/100km
Fuel cost over five years at 20,000km a year: $10,800
Combined cost over five years: $53,090

In anticipating the Outlander PHEV to use 1.7L/100km of fuel on average over the five-year period, we assume that the battery won't be recharged every single night, and that the SUV will be driven beyond the electric-only range on occasion.

But even if the plug-in Outlander is religiously recharged every night and the petrol engine is only used once in a blue moon, there's still a shortfall of around $1500 after five years, favouring the diesel. The conventional petrol Outlander is cheaper still – by $2000 less to own than the diesel. It does start out with a $3500 purchase-price advantage over the diesel.

All that, of course, is based on the internal-combustion Outlanders averaging the respective combined-cycle fuel economy figures over the whole five-year term. In the real world, the diesel Outlander is unlikely to come anywhere near the combined-cycle figure in stop-start urban running and short journeys.

In a recent review of the diesel Outlander the around-town fuel consumption was as high as 11L/100km, which would narrowly hand a win to the PHEV. But when we say 'narrowly', we're talking about a difference of $1550 favouring the plug-in model after five years of ownership.

And if you ever tow anything with your Outlander, go on holidays or spend weekends in the bush with the whole family on board – the PHEV is probably not going to undercut the diesel model's total cost of ownership.

It's undeniable that the higher purchase price of the Outlander PHEV is what kills the plug-in model's chances of winning the ownership affordability battle. If all three variants of Outlander were priced the same as the diesel, the positions would be reversed. The Outlander PHEV (at $51,980 over the five years) would be up to $3090 cheaper to own than the diesel, which would be $1500 cheaper than the petrol model.

Porsche Cayenne E-Hybrid
Purchase price: $135,600
Official combined-cycle fuel consumption: 3.4L/100km
Fuel cost over five years at 20,000km a year: $5440
Electricity cost over five years at 20,000km a year: $4480
Combined cost over five years: $145,520

Porsche Cayenne (petrol)
Purchase price: $115,900
Official combined-cycle fuel consumption: 9.2L/100km
Fuel cost over five years at 20,000km a year: $14,720
Combined cost over five years: $130,620

The plug-in hybrid version of the Porsche Cayenne starts out nearly $20,000 more expensive than the entry-level model. That's a lot to peg back, even over a five-year period. Both vehicles run a turbocharged 3.0-litre petrol V6 in addition to the electric powertrain componentry of the E-Hybrid variant. Since both engines run on premium unleaded (95 RON), the price of the fuel was adjusted up to $1.60 for the sake of this comparison.

After five years, the difference in cost of ownership has only reduced to about $15,000, still favouring the petrol-only model. As for the Mitsubishi Outlander, however, adjusting the datapoints for different scenarios can have a profound effect on the outcome, potentially reducing the gap by many thousands of dollars.

Recharge the plug-in Cayenne every night and confine travel each day to no more than the SUV's electric-only range (42km) and the petrol model's advantage is eroded by $5440 over the five-year term.

Calculating the difference using the petrol model's urban economy figure (11.3L/100km) rather than the combined-cycle figure of 9.2L/100km and that makes the petrol-only Cayenne's combined ownership cost $3000 higher – reducing the difference to $7060. The difference comes down again if the real-world fuel consumption for the petrol Cayenne is actually more like 13L/100km – a far more likely figure, we reckon. There could be as little difference as $4050 between the two after five years.

However you cut the figures though, the owner of the Cayenne E-Hybrid will be waiting a while before the fuel-saving plug-in pays off the difference in purchase price to the petrol-only Cayenne.

In a best-case scenario for the plug-in model the point of amortisation may be within seven years. Conversely, the plug-in owner may not see any cost benefit for 11 years after the purchase – which is obviously long past the trade-in date for most owners.

Volvo XC60 T8 R-Design
Purchase price: $92,990
Official combined-cycle fuel consumption: 2.1L/100km
Fuel cost over five years at 20,000km a year: $3360
Electricity cost over five years at 20,000km a year: $4984
Combined cost over five years: $101,334

Volvo XC60 T6 R-Design
Purchase price: $78,990
Official combined-cycle fuel consumption: 8.0L/100km
Fuel cost over five years at 20,000km a year: $12,800
Combined cost over five years: $91,790

Like the other SUVs in this exercise, the plug-in Volvo XC60 T8 R-Design is significantly more expensive than the conventional T6 variant. $14,000 separates the two for purchase price. After five years, the difference in ownership cost is reduced by over $5000, but the plug-in model has still cost the owner $9544 more.

In a best-case scenario, however, the T8 owner may be just $2664 behind the eight ball after five years. To achieve that, the T8 owner must rarely use the petrol engine and drive in urban environments only. Assuming that the owner of an XC60 T6 will never see fuel consumption as low as the car's 10.2L/100km urban figure in the real world of heavy traffic and every-day commutes, the T8 could conceivably pay for itself within six years.

While manufacturers continue to price plug-in hybrids so much higher than conventional models trimmed to roughly the same specification, the first owners will rarely see any nett gain in terms of ownership costs short of retaining the car for a very long time – perhaps a decade or longer.

There are ways that a plug-in could be cheaper to run than a conventional counterpart sooner than five years, but that's based on the convergence of these parameters:

• Frequent journeys that are too short for an internal-combustion engine to reach normal operating temperature and peak efficiency,
• High-density traffic demanding continuous stopping and restarting,
• Fuel prices rising while electricity tariffs come down.

For most consumers, sad to say, the plug-in hybrid offers little to commend it if the cost of ownership is the principal motivating factor to buy the vehicle. It's not much cheaper than a battery-electric vehicle and will inevitably cost more to service.
Most buyers will on-sell their plug-in hybrid long before it can offset the difference in purchase price with lower running costs.