The True Cost of a Car: Seven Numbers the Price Tag Hides
The price on the windshield is the number everyone compares. It's also the least useful one, because a car doesn't cost you its price — it costs you the price minus whatever you eventually sell it for, plus everything you spend keeping it running in between. That's seven numbers, not one, and adding them up by hand takes about ten minutes.
The method: seven costs, one total
Over however many years you plan to keep the car:
- Depreciation — purchase price minus what you expect to sell it for. This is the car being used up, and for most vehicles it's the largest line item by far.
- Finance cost — if you borrow, the total interest paid over the loan. Zero if you pay cash.
- Insurance — annual premium × years.
- Tax or registration — annual fee × years.
- Servicing — annual maintenance budget × years.
- Tyres — annual replacement budget × years.
- Fuel or electricity — (annual distance × years) ÷ efficiency, × the price per unit of fuel or energy.
Add all seven and you have the total cost of ownership. Divide by years for the cost per year, or by total distance for the cost per mile — the number that actually lets you compare a car you drive 6,000 miles a year against one you drive 20,000.
Worked example: a petrol sedan against an EV, five years, 10,000 miles a year
Both bought with cash, so there's no financing line to compute. Both driven 10,000 miles a year for five years — 50,000 miles total — and both sold at the end of year five.
Compact petrol sedan: price $24,000, resold for an estimated $10,000, so depreciation is $14,000. Insurance $1,100/year × 5 = $5,500. Tax $150/year × 5 = $750. Servicing $600/year × 5 = $3,000. Tyres $220/year × 5 = $1,100. Fuel: 50,000 miles ÷ 34 mpg = 1,470.59 gallons × $3.60 = $5,294.12.
Total: $14,000 + $5,500 + $750 + $3,000 + $1,100 + $5,294.12 = $29,644.12 — $5,928.82 a year, $0.59 a mile.
Compact EV: price $32,000, resold for an estimated $13,000, so depreciation is $19,000. Insurance $1,300/year × 5 = $6,500. Tax $150/year × 5 = $750. Servicing $300/year × 5 = $1,500 (fewer moving parts). Tyres $250/year × 5 = $1,250 (EVs are heavier, and tyres wear faster). Electricity: 50,000 miles ÷ 3.5 mi/kWh = 14,285.71 kWh × $0.15 = $2,142.86.
Total: $19,000 + $6,500 + $750 + $1,500 + $1,250 + $2,142.86 = $31,142.86 — $6,228.57 a year, $0.62 a mile.
The number that decided it wasn't fuel
The EV wins on running energy by a wide margin — $2,142.86 against $5,294.12, a $3,151.26 saving over five years. It still finishes $1,498.74 more expensive overall, because it loses $5,000 more to depreciation, $1,000 more to insurance and $150 more to tyres, clawing back only $1,500 of that on servicing: a net $4,650 lost against a $3,151.26 fuel saving. Anyone comparing only the fuel receipts would have picked the more expensive car.
This is also where the honesty rule bites hardest: depreciation is a guess about resale value years out, and it's the single biggest number in the whole calculation. Move either resale estimate by a plausible amount and the ranking can flip. Running the numbers with your own resale estimate, not a guess borrowed from an ad, is the only way to see how much the answer depends on it.
What the tool adds
The arithmetic above is everything the method needs, and it's the same seven lines for any vehicle — petrol, diesel, electric or plug-in hybrid. The free Car Total Cost of Ownership tool takes up to four vehicles pasted in at once, handles US and imperial gallons, L/100km, mi/kWh and the other efficiency units without you converting anything by hand, and itemises the breakdown so the lines sum exactly to the total — entirely on your device.