Is it worth it to invest in an electric bicycle?
This question is actually somewhat complex but for us e-bike enthusiasts, the answer is not (hint: it's yes). Here's some of the key points from an analysis I did comparing the long-term cost of ebike commuting the cost of car commuting:
- The Basics
First, let's talk sticker price. Your average new car costs north of $30k. For a $32k car ($35k with taxes and fees) you're looking at a recommended $7k down, with $28k financed. Let's call the loan a four-year at a solid interest rate of 3%.
On the other hand, a decent electric bicycle runs anywhere from $2-4k. And speaking of running, many electric bicycles can go 40+ miles on a charge, so hold off on the "not with my commute" argument. Let's account for the elements by throwing in $500 for top-of-the-line wet or cold-weather gear, and call our up-front cost $3,500, which we pay off on day one.
When it comes to large assets, many financially savvy folks "misunderestimate" the true cost of ownership, usually by failing to account for some cost element. For the car, our principal & interest payment is about $620. Adding in insurance, gas, licensing plus a modest yearly maintenance, takes us to an effective monthly cost of $330 for the life of the car.
Let's run the numbers on that electric-assist bike. You didn't finance, so that part is easy. Conservatively, keeping the battery topped will run you about $1.50 per month. Convinced yet? Adding in regular tune-ups and a modest increase in your personal-injury insurance (via either home-owners or renters) ups the total monthly cost to somewhere in the neighborhood of $25.
- Opportunity Cost
Any significant purchase (think four figures or more) means moving funds from the interest-earning assets side of your balance sheet to the liabilities side. The loss return on those assets is the Opportunity Cost, which we'll call the "OC". If a good investment is the ghost of Christmas future, the OC is the ghost of Christmas past. It's the trip you should have taken, the girl or boy you could have dated but never asked out... okay, you get the point.
The 10-year OC for that 32k car is about $30k dollars. That's about the amount the down payment, loan payments, and the ongoing costs would earn in an index fund over the same period.
The bicycle's 10-year OC is approximately $5k. In other words, investing the money you'd spend over the lifetime of the car would generate almost enough profit to buy the car with cash, and still have your original investment left over. Ever wonder why the rich get richer?
Utility, in economic terms, is the usefulness or enjoyment a consumer gets from her purchase. In this case, it really depends. The enjoyment of a 400 horsepower roadster can't really be topped by anything with pedals. (At least not yet)
The bicycle, however, does have certain utility benefits that a car will never have, including built-in exercise, the freedom from traffic-related stress, and the benefit of more time outdoors. Ultimately, you'll need to do your own math, but be sure to consider the long-term enjoyment as well as the short-term rush of your purchase.
- Total Cost of Ownership
Let's run the numbers. To calculate the total cost of ownership, we add up the initial payment, the sum of the monthly operating costs, as well as the opportunity cost for the two vehicles, then subtracted out the respective resale values assuming a standard depreciation over ten years. Ready?
The total cost of ownership for the car is about $90k.
The bike comes in a hair above $10k.
If you decide to go with an E-Bike, the real question is what to do with that $80k spread. You could go and buy a sportscar. My recommendation? Invest the difference and retire a couple of years earlier. Then buy the sportscar.