iPhones and Electric Cars

By Bill Moore

Posted: 10 Jun 2012

Here's a simple personal financial question for you? Which is cheaper? An Apple iPhone 4s (16G) at $199 and a two year service contract or the same phone for $649 and a $35 a month prepaid service?

I'll let you think about this for a moment, because the economics of cellphones and electric cars are a lot alike. Sure, there's a magnitude of difference between a cellular telephone and an EV in terms of costs, not to mention functionality. One connects you to people and information digitally, the other in-the-flesh. But when it comes to plunking down dollars (or Euros, Yens, or Yuans) they are strikingly similar.

I got to thinking about this when I read over the weekend that Apple and Virgin Mobile have partnered to offer iPhone service on a pay-as-you-go basis for $35 a month (300 minutes talk time and unlimited data) compared to Verizon and ATT plans that quickly add up to $70-90 a month for a 24- contract.

I have long resisted buying an iPhone (our PhD daughter lives by hers) because of those high contract rates, and the fact that I am not out of my office all that much: my desk phone and Skype meets most of my communication needs. I do have an aging Motorola flip phone that I use on the T-Mobile network for those few occasions when I am on the road. I use their prepaid, pay-as-you-go (PAYG) service, such as it is (there are dead zones even here in Omaha). My wife's Virgin Mobile phone is also PAYG, but because Virgin in the USA uses Sprint's backbone, there are few places she can't call from. Call us penny-pinchers, but we're not married to our phones like so many people are; hell, we don't even know how to text, which frustrates our daughter to no end.

So, news that we could continue our no-contract approach to cellphone service and switch to an Apple iPhone caused my ears to perk up… until I saw the $649 price tag -- the iPhone 4 (8G) is a bit cheaper, but less capable, at $549. That's a big lump of cash to dole out up front, whichever phone you choose.

Now, let's change tack for a moment and talk about electric cars. We learned last week that the EPA has rated the Honda Fit EV at the equivalent of 118 miles per gallon, the best of its breed. But in a widely circulated Associated Press report [http://evworld.com/news.cfm?newsid=28093], the focus was on its upfront costs; nearly twice that of its gasoline version: $29,125 after the $7,500 U.S. federal tax credit.

Quoting the owner of a string of dealerships in Virginia, the article states, "Customers don't want to spend the extra money up front and wait for years for payback."

Now figuring the payback on the Honda Fit EV would be difficult for several reasons. First of all, Honda isn't going to sell the car, but lease it. Also, it plans to only lease 1,100 of them over the next two years. Additionally, we don't yet know the length of the lease or costs. Despite this, this AP story takes stab at calculating the payback anyway, coming up with $1,107 in annual fuel savings, point out it would take like eleven years to make up the difference, but since automobile leases never run that long, it's impossible to make an fair and accurate comparison.

References a Chevy Volt driver who leases his car, AP points out his $369 lease payment is easily offset by the $300 a month he was paying for gasoline. Leasing an EV may, in fact, be the smart financial move for the foreseeable future.

Assuming, you want to own the vehicle, then like the Apple iPhone, an electric car prospect must decide if they want to pay a little up front, but lay out more cash over the long-run, or bite the bullet and pay more up front, but less over the long term, which is the lesson learned from the Verizon versus Virgin iPhone offerings. It turns out that over a typical two-year contract period, laying out the cash upfront and going the prepaid route saves about $750, calculates the Christian Science Monitor, but you have to look further down the road financially than most Americans are willing or able to do.

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