Technology – I Live Off Dividends

The Formula for Working Out if You Should Buy an Electric Car

I have created what I think is a formula for working out if it makes economic sense to buy an electric vehicle. You can find it below:

$r_E = \dfrac{k}{100p} \left( f_I e_I - f_E e_E - \tau - \beta \right)$

$r_E = return \; on \; EV \\ k= kilometres \; travelled \; per \; year\; (km) \\ p= EV \;premium \; (\$) \\ f_I= ICE \;fuel \;cost \;(\$ \;per \;L) \\ e_I = ICE \;fuel \;efficiency\; (L \;per\; 100km) \\ f_E = EV \;energy \;cost \;(\$\; per\; KWh) \\ e_E = EV \;energy \;efficiency \;(KWh \;per \;100km) \\ \tau = EV \;tax \;(\$ \;per \;100km) \\ \beta= \;battery \;depreciation \;(\$ \;per \;100km)$

Explanation of the formula

The way to think about whether an EV is worth it or not is to consider the EV premium, which is the difference between the higher cost of the EV and the cheaper internal combustion engine (ICE) car. So for example, as of December 2023, the MG ZS EV costs $42,990 whereas the petrol version MG ZS is $21,990, so there is an EV premium of p = $21,000. When you pay for this EV premium, you are effectively putting this $21k into an investment that has a return ( $r_E$ ) which needs to be compared to the return of other investments. For example, suppose you buy an EV and spend and extra $21k and from the fuel savings etc you make 3% per annum returns ( $r_E = 0.03$ ). If you believe that an alternative investment such as DHHF or VDHG has an after-tax return of over 3% then you would be better off buying the petrol MG ZS and putting the EV premium of $21k into DHHF or VDHG.

Another key consideration is battery depreciation. The EV premium is mostly a battery premium. The investment you are making is mostly in the battery. This battery has a return that you get from having access to energy in the form of electricity. Energy in the form of electricity is much cheaper than from petroleum. However, the EV tax and battery depreciation needs to be considered as well.

Looking at the MG ZS vs the MG ZS EV, the fuel economy of the MG ZS is 7.1 L per 100km and the petrol price is assumed to be $1.75 per litre. This means that every 100km you drive you are spending $12.43 in petrol.

However, for the MG ZS EV, the energy efficiency is 17.1 KWh per 100km and the cost of electricity under the Powershop EV Plan is $0.18 per KWh, which means that every 100km you only pay $3.11 in electricity costs. However, add in the EV tax of $2.50 per 100km (only applies in Victoria, Australia) and battery depreciation of $4.29 per 100km assuming battery life of 350,000 km and battery replacement cost of $15,000 and the EV cost is $9.89 per 100km, which is still cheaper than the $12.43 per 100km from the petrol car.

Because costs depend on the distance you drive, whether it makes sense economically to drive an EV strongly depends on how much you drive. The more you drive (especially over 25,000 km per year) the more it makes sense to get an EV whereas if you drive under 25,000 per year, it starts to make more sense to drive a petrol car.

Something else to consider is that when you pay for petrol, you pay for it using after-tax money whereas if you put the EV premium into getting an electric car, the lower cost per 100km you get is tax free. You need to compare the return from paying the EV premium against the after-tax returns from an alternative investment e.g. the after-tax returns of DHHF or VDHG.

If we assume that you drive 25,000 km per year then the MG ZS EV costs $2,473 per year whereas the MG ZS costs $3,106 per year. Given the EV premium of $21k this means the return on the EV premium $r_E = 0.0301 \; or \; 3.01 \%$ .

A major uncertainty is the battery depreciation as it is difficult to know the battery life and battery replacement cost. In fact, most of the costs of driving an electric car seems to come from battery depreciation alone.

Reddit comments

I shared this formula on Reddit and received mixed reviews. Some people raised very good points that I have missed in the formula, but I think overall the formula above is useful to know whether it makes sense financially to purchase an EV or not. Below are some other considerations:

EVs have lower servicing costs.
EVs are heavier and so tire costs are higher.
Charging from solar energy is ignored as this would add extra complication due to the capital costs of installing solar panels and/or home batteries. Charging using solar energy is not necessarily free as some claim as there is opportunity cost associated with locking capital up and not earning returns elsewhere such as DHHF or VDHG.
The EV tax in Australia currently only applies to Victorians. Laws may change in the future amending the EV tax.
A recent FBT exemption provides an incentive to get an EV using salary packaging.
Battery depreciation is considered but the depreciation of the ICE vehicles is not considered because it is assumed that depreciation for the EV and ICE vehicles are the same except for the additional EV battery depreciation. The assumption here is that when you buy an EV, you are buying something similar to an ICE car with a battery, so basically it is assumed that EV = ICE + Battery. However, the EV may depreciate more or less than the ICE vehicle depending on e.g. if governments increase or decrease EV taxes or subsidies. Some suggest that EVs depreciate faster than ICE vehicles, but this may change e.g. if the government introduces an additional carbon tax that applies to petroleum. If government is very aggressive in providing tax benefits for EV use, there is a risk that an ICE vehicle could become a stranded asset.
The formula above ignores power or acceleration differences between cars. The MG ZS EV is supposedly more powerful than the MG ZS. It is claimed that EVs are very quick to accelerate. However, this is ignored in the formula as we only want to focus on cost minimisation.
The formula ignores the environmental benefits of owning an EV as well as national security considerations (e.g. energy supply and price not being at the mercy of Russian or Saudi leaders).
Batteries stored at the bottom of an EV lower the centre of gravity thereby making them safer. Furthermore, because EVs are heavier, they fare better in vehicle collisions.

Other thoughts and considerations

The decision to get an EV or an ICE vehicle is very similar to whether you buy or rent a home. When you buy a home, you lock up a considerable amount of capital into the home. The benefit you get from living in your own home is that you don’t need to pay rent. If you buy your own home and then rent goes up significantly, you are better off. Similarly, when you buy an EV, you lock up capital because of the added cost of the batteries. However, the benefit you get from EV ownership is that you pay significantly lower energy costs. If you buy an EV and petrol prices go up, you are better off.

We also need to think about the future. Currently the break-even point is about 25,000 km. If you drive more than 25,000 km per year, it is highly likely you should buy an EV. However, if battery technology improves, petrol prices go up, and electricity prices go down, the break-even point will go down. There is also huge risk that an ICE vehicle you own may become a stranded asset if government policy aggressively addresses climate change. In my opinion, it is more likely that electricity prices will go down and petrol prices go up rather than the other way around. Electricity comes from multiple sources e.g. solar, wind, nuclear, and even gas, oil and coal. However, petrol only comes from oil. As such the supply of energy sources that can create electricity is much higher than the supply of energy sources than can create petrol, so higher supply should result in lower prices for electricity as an energy source.

Based on these considerations, in my view, even if you only drive 15,000 km to 20,000 km per year, if you’re in the market for a new car, it is better to buy an EV. It is better to drive an ICE vehicle if that is what you currently own and if you don’t drive too much (less than 25,000 km per year).

Netflixing to Save Money

When I was younger, I rarely went out. I preferred to stay inside and indulge in cheap electronic entertainment. As I invested more and more and started to earn more dividends, I found myself in a position to go out every now and then, but I have realized that I actually hate going out. I would prefer to stay home and watch Netflix. It just so happens that netflixing is much cheaper than going out, and it is very enjoyable as well.

Netflix pours billions of dollars each year into content production, which means they are able to provide extremely good entertainment to its customers, and customers only need to pay $12 per month. It’s a good deal, in my opinion. It is far better than going out. When people at work show off to me that they went out to a restaurant to a vineyard, I am not afraid to just tell them that I am a hardcore netflixer.

I was talking to colleague earlier this week about how Netflix is an investment because you save up so much money on Netflix that you are able to pour massive sums of money into ETFs. What I hate about “going out” is that it has become such a status symbol. People brag about going out and socializing as if there is something so special about it when really all they are doing is moving themselves to a new location and spending significantly more for it.

When I started working full-time, I was saving about 80% of my salary whereas now I am saving 100% of my salary and living off dividends. I think what is most important is that you pick a savings rate and stick to it. Whether you eat out, pack your lunch, buy coffee, or whatever is irrelevant as long as you stick to your savings goal. Many people focus on small things such as skipping coffee and saving $4 per day, but I find that many of these people skipping coffee are blowing their money on holidays, cars, and so forth. Often skipping coffee is not a savings plan but a reaction to blowing your money elsewhere. Picking and choosing isolated examples of how you save money is meaningless. It’s the overall savings rate that matters.

My Views on Google Pixel, Google Home, and Google Daydream

Google recently announced it would unveil a series of new hardware devices. For those who are unaware of what has happened, Google unveiled two new smartphones called the Google Pixel and Google Pixel XL. They also unveiled Google Home, which, based on videos, seems like a device that looks like a lava lamp that you put in your house and talk to. Then there is Google Daydream VR, which is a virtual reality headset to rival e.g. Oculus, HTC Vive, etc.

Google Pixel smartphones

While these products are not out yet, all in all, I must say that I am very underwhelmed. The Google Pixel phones are quite bland, boring, and expensive, and it’s disappointing that Google is discontinuing their Nexus program.

I currently have a Google Nexus 5 (2013), which was a brilliant phone back in 2013 because it contained high-end specifications for only A$400 (US$300). However, just looking at the JB Hi Fi website, it is clear that Pixel phones in Australia will cost more than A$1000 (US$760).

Being used to paying A$400 for a flagship phone to all of a sudden paying over A$1000 is going to get some getting used to for Nexus fans.

Of course, the Google Pixel phones will be well equipped. Supposedly the Google Pixel phone has the best camera in the world. They will also be equipped with the latest Qualcomm Snapdragon 821 processor as well as 4 GB of RAM, which should make it quite fast. Whether it will be faster than the current fastest phone on the market (the Galaxy Note 7) is yet to be determined. Nevertheless, the Snapdragon 821 is the latest and greater mobile processor from Qualcomm, and based on my history of buying smartphones, Qualcomm make excellent processors, so I’m confident the Pixel phones will be fast.

But this is not what worried me. My old Nexus 5 (2013) still uses an old Snapdragon 800 processor and is still quite fast, more than enough for my needs. Speed on a smartphone is not that important unless you play lots of games, and if you’re playing lots of games, why play it on a smartphone? You’re better of getting something that is actually meant for playing games, such as a proper gaming computer or a Playstation 4.

Of course, a feature that I love about the Nexus 5 (2013) is that it has wireless charging. Unfortunately, the Nexus 5P (2016) and even the Google Pixel phones do not have wireless charging anymore, which is a huge bummer because I have set up wireless charging pads all over my work and home, and I don’t want to go back to plugging wires into my phone. Interestingly, the only brand that has wireless charging now is Samsung.

Another unfortunate fact about the Pixel phone is that it is not waterproof and it does not have expandable storage. If you’re going to pay big money for a phone, you want it to have features that match with expensive phones, and currently the only brands that have both waterproofing and expandable storage on their flagship phones are Sony and Samsung.

Although the camera is supposedly great on the Pixel, I personally don’t take too many photos, and I am not too concerned about camera quality. If I go on a holiday, I will wear my Narrative Clip 2, which means I don’t need to bother with taking photos while on holidays. I find going on holidays just to take photos quite strange and fake. I remember going to Asia some years ago and I was taking photos of an ancient temple because I wanted to create memories of my trip. But then I realized that there was no need to take these photos because, a simple Google image search can bring up thousands of these types of photos. Furthermore, if you take photos of other people, they behave differently. They pose and act fake. Many people don’t like to have their photos taken. This is why it’s better to just get a wearable camera to take photos automatically or, once technology advances enough, hopefully drone will fly around and take photos for us.

Another downside of the Google Pixel phones is that they actually look a little bit like iPhones, especially the bottom part. Many people say this is good because the Apple symbols is a status symbol that people want to show off to others, but I am certainly not a fan of Apple products. There seems to be no reason to buy them given that they lack features. You are able to get more features for the price if you buy other smartphones, so buying an Apple iPhone therefore just seems stupid. If someone were to use an iPhone and saw the the Apple symbol on their phones, I would actually judge them very unfavorably because they are likely superficial people who only look at brands and don’t actually do any research. People need to keep this in mind if they’re buying a status symbol because they may give off the opposite signal that they intended to give off.

Google Home

Google Home seems even weirder because I just cannot imagine talking to a device. There’s nothing wrong with it. In fact, I often talk to my phone to set reminders while I’m out and about, when it’s usually when I’m alone because talking to your phone just seems like a weird thing to do, and I’d feel quite a bit of shame doing it in a room filled with people. It’s not just the weirdness of talking to a phone but there is also a privacy issue as well. Do you really want other people to know what kind of searches you’re going? Suppose you’re doing a search for cures to erectile dysfunction or testosterone boosters.

Google Home looks like it’s taking the same concept and applying it to the home. In the home, especially if you live alone, there is less shame.

The video above of Google Home being demoed in a home looks like a scene from a dystopian movie.

Google Daydream VR

Google Daydream VR actually looks like a device that I may actually buy. Firstly, it’s really cheap coming in at US$79 (A$104). The big value add that Daydream provides, I think, is that you can use it while lying down in bed.

At work, you’re on your computer all day looking at a screen. When you’re on the train to an from work, you’re reading something on your phone. When you’re at home, you’re watching your TV. With many of these devices, especially laptops and smartphones, there are major posture issues. When using your smartphone, you’re hunched over.

Google Daydream VR, I think, will allow you to lie down on your bed and watch, say, Netflix or YouTube. Furthermore, because you wrap it around your eyes, you are not distracted by what is happening around you. Furthermore, there is privacy because other people around you don’t know what you are looking at.