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).

How to Live off Crypto by Staking

Update December 2022: I no longer recommend staking crypto. See this post for my more recent views on crypto.

I primarily invest in the stock market and aim to live off dividends mostly from ETFs. However, the cryptocurrency market is hard to ignore. When you compare the total crypto market to the S&P500 (see chart below) you will notice that crypto makes holding stocks feel like holding cash. In the last five years, the S&P500 has gone up by 109 percent which is almost double. However, the total crypto market cap has gone up 18,942 percent.

Total crypto market cap (blue) vs VOO ETF, which tracks S&P500 (orange) over the past five years.

Institutions are starting to look into crypto. For example, Tesla invests in bitcoin, and the Commonwealth Bank has announced it will soon allow crypto to be used within its app. All this shows that crypto is going mainstream.

Recently ETF provider Betashares has released its Crypto Innovators ETF (CRYP). For those who are interested in exposure to crypto, I highly recommend this ETF, which doesn’t invest in crypto itself but in crypto companies (e.g. crypto miners, crypto exchanges, and companies that hold a lot of crypto). It is analogous to investing in a gold mining ETF rather than holding physical gold itself. What is reassuring about this ETF is that it roughly tracks the price of bitcoin and ether, the two largest cryptos.

The CRYP ETF (blue) is roughly correlated to bitcoin (orange) and ether (aqua) prices.

The benefit of buying CRYP rather than holding the actual cryptos itself is safety and security. ETFs are regulated by government, which is reassuring. The alternative way to securely hold crypto is via a paper wallet, which I do not recommend to beginners as it is complex. If you do not know what you are doing, one small error can cause all your crypto to be lost.

When buying and holding crypto investments such as bitcoin, ether or CRYP, you mainly profit from capital gains made when prices go up. Usually there is little income to be made from crypto. The CRYP ETF pays dividends, but it is likely to be very low. However, a recent innovation in the crypto market that has changed all that is staking, which allows you to earn income on crypto.

What is staking?

According to Binance, the term “staking” is defined as “holding funds in a cryptocurrency wallet to support the security and operations of a blockchain network. Simply put, staking is the act of locking cryptocurrencies to receive rewards.”

To put it simply, when you stake crypto, you are locking it up and allowing it to be used to earn more. The passive income earned via staking is termed “staking rewards.”

Why stake?

What is the purpose of staking? Why not just buy and hold the crypto or invest in dividend-paying stocks? Quite simply, the returns via staking are huge. My favourite place to stake crypto is the PancakeSwap Syrup Pools, and as of November 2021, the average APR from staking is about 60 to 70 percent. Earning 70% from crypto staking is far higher than what you’d earn from dividends. Furthermore, if you buy and hold crypto or CRYP, you are earning either zero or very little passive income.

The huge risks of staking crypto

Of course, if returns from staking are 70% or more, why not just go all in? The answer is that staking is very risky, so I do not recommend putting in too much, and any amount you put in should be an amount you are prepared to lose. When staking crypto, you are giving up control of your crypto and handing it to a protocol. Protocols are merely code, and code can have flaws that hackers can attack. There have been many hacks recently e.g. billionaire Mark Cuban lost a lot of money following the hack of Iron Finance. Other examples of major hacks of decentralised finance networks include PancakeHunny and Poly Network.

So then if crypto staking is so risky, what is the point of staking? Basically you will need to consider whether the high gains are greater than the risks. Everyone has different risk tolerance. Thankfully there are many ways you can reduce the risk of crypto staking. The first is to stake on more reputable networks e.g. PancakeSwap and ApeSwap are examples. Research whether these networks have been audited by reputable crypto audit organisations (e.g. Certik). Furthermore, it is always a good idea to spread your money across different networks just in case one gets hacked. I currently stake crypto on PancakeSwap, ApeSwap and BiSwap.

How exactly do you stake?

In terms of the nuts and bolts of how to stake, more detail can be found on YouTube. In terms of how I stake crypto on PancakeSwap, I deposit Australian dollars into Binance and then convert it into BNB (Binance Coin). Then I withdraw the BNB into a crypto address generated using the Trust Wallet app. Using the Trust Wallet browser, I go to PancakeSwap and convert the BNB into CAKE. I then go to the syrup pool and stake the CAKE. When the staking pool generates a reasonable amount of staking rewards, I harvest the staking rewards, convert it back to BNB, send it to Binance, and then convert it back to Australian dollars before withdrawing it into my bank account.


As mentioned, staking is very risky, so I am relying on both staking rewards from crypto and dividends from ETFs to fund my living expenses. The staking rewards provide high returns whereas the ETFs provide safety and lower risk. Indeed the staking rewards are taxed in full. There are no franking credits on staking rewards. Regardless, for argument’s sake, even if you pay 50% in tax, staking reward of 70% means you have 35% after tax. Dividend yields are about 5% and assuming franking credits completely offset income tax, 35% is higher than 5%, so it is better to simply pay the tax. Often investors are focused too much on tax or other aspects of an investment (such as how much leverage you can achieve). What matters is total return.