Is Hybrid Worth It on the RAV4?

October 20, 2020 • 01:46 PM

Friends around us know that we’re recently in the market of a car. And as we weighed our needs and the options in the market, we are looking at the Toyota RAV4.

When it comes to Toyota, there is one very common question — is hybrid worth it? As we did our research, we went from Yea it’s a no-brainer to Actually, it’s not exactly worth it… But something just never quite clicked with my money spidersense that I acquired from my Accounting 101 foundation.

Then it finally hit me: all the bloggers and YouTubers and columnists — even in a popular article from Globe and Mail1 — simply handled the math wrong.

Here’s how they do the calculation: MSRP2 delta on the hybrid car, divided by per-year savings on gas, equals how many years to break even on the hybrid premium. It’s not a wrong method per se, but they all left out one important part of the equation!

Everyone knows they pay more for a hybrid car. What they forget is that the hybrid car also sells for more. Your cost to own the car isn’t just what you pay upfront; it’s what you pay today minus what you might sell years later, or the depreciation.

In the case of the Toyota RAV4, the 2020 XLE trim has a delta of C$1,560, hybrid vs. non-hybrid. If you get rid of it in 6 years3 at 55% of its MSRP4, the extra depreciation over the 6 years is simply C$1,560 × (100% - 55%) / 6 = C$117 per year. Assuming the RAV4’s mileage applies with 50-50 city-highway mix (8.0 Litre / 100 km for non-hybrid, 6.0 Litre / 100 km for hybrid), and that the gas price is C$1.20 / Litre5 (a generous estimate for B.C.), you can expect to break even if you drive more than $117 / [$C1.20 / Litre] × [(8.0 - 6.0) Litre / 100 km] = 4,875 km per year, which is an extremely low threshold. From this base scenario, you can probably derive something closer to your case:

The Takeaway

Back to the question — is hybrid worth it? For the RAV4, yes it is — as long as you are driving at least 5,000 – 10,000 km a year or more.

Contrary to what the bloggers and columnists are trying to tell you, the hybrid car earns you money even from the first year — if you drive more than 10,000 km. The money you save since the first year is probably a lot more than the extra depreciation.

  1. Globe and Mail: Doing the math — is a hybrid car worth it? 

  2. MSPR: Manufacture’s Suggested Retail Price 

  3. Source: auto123.com — Canadians get rid of their SUV / compact SUV in a median of 6 years. 

  4. Source: Car Edge

  5. Or for our friends in the south of the border, about US$4.10 per gallon. Chances are you have way lower gas prices than anywhere in Canada :-) 

  6. Source: CarEdge Honda CR-V depreciation schedule; Nissan Rogue