College of Business > Academics > Department of Economics > News & Events > Breakeven Analysis
By Professor Anthony Krautmann /
January 27, 2020 /
Posted in: Research and Centers /
A recent article in the Chicago Tribune evaluated the Toyota Highlander AWD — both the hybrid and non-hybrid versions. The hybrid cost $1,400 more than the non-hybrid, but gets 35 miles per hour (compared to 23 miles per hour for the non-hybrid). The average American drives 13,476 miles per year, meaning this individual would buy 585 gallons of gas with the non-hybrid and 385 gallons with the hybrid, saving 200 gallons of gas per year with the hybrid. For gas prices of $2.50/gallon to $3.00/gallon, the hybrid saves $500/year to $600/year. This marginal savings of $500/year to $600/year in gas purchases implies that it would take 2.3 years to 2.8 years to offset the extra $1,400 in the purchase cost of the hybrid.
This two- to-three-year breakeven horizon for the Highlander dwarfs the comparable horizon for the Toyota Camry LE (again, comparing the hybrid to the non-hybrid model). The hybrid Camry LE costs $3,400 more than the non-hybrid Camry LE, while it gets 52 miles per gallon compared to the non-hybrid at 35 miles per gallon. Here, the analysis implies a nine- to eleven-year breakeven horizon. And for the Toyota Corolla LE, the breakeven point is eight-to-10 years.
To summarize, the breakeven (BREAKEVEN) horizon falls: