Recent developments have put the automotive industry on a fast track to transition toward electric vehicles, in what the Biden administration identifies as a key player in reducing carbon emissions. However, several bumps in the road have caused drivers to stop buying electric cars, including the high prices and confusing tax credits.
The affordability problem
One of the primary barriers to more widespread EV adoption is the initial cost. The average price people are paying for a new EV has dropped recently, largely influenced by Tesla’s price cuts — down more than $13,000 year over year, according to Cox Automotive. However, EVs are still more expensive than their combustion counterparts.
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A new EV costs $2,800 more than what the average person paid for a new gas-powered vehicle this year, according to the Natural Resources Defense Council. However, EVs are reported to have cheaper annual fuel than their counterparts and lower maintenance costs that can make up for the higher upfront price over time.
EVs also are more costly to make and produce. The raw materials needed to manufacture an EV are 125% more than those needed to make a comparable internal combustion engine vehicle, according to an AlixPartners report last year.
The tax credit debacle
Last year, President Joe Biden signed the Inflation Reduction Act into law, which created a tax credit for drivers who buy new electric vehicles. But this year, the Biden administration made a key change, stating that the vehicle must be built in America to qualify.
This year, the Treasury Department announced new guidance for the electric vehicle tax credit. Starting in January 2024, those who opt to purchase a new vehicle can get up to $7,500 off the sticker price if they make less than $150,000 — or $225,00 for heads of households and $300,000 for married couples. Buyers of used electric vehicles can get $4,000 off a car priced at less than $25,000 if they make less than $75,000 — or $112,500 for heads of households and $150,000 for married couples.
Only a handful of models qualify for the full $7,500 electric vehicle tax credit — such as the Tesla Model 3 and Tesla Model Y, Ford F-150 Lightning, and Chrysler Pacifica plug-in hybrid.
One factor that could help ease some confusion around obtaining the federal tax credit was also put in place this year. Buyers of new EVs can now transfer federal tax credits to use at the dealership rather than waiting for a tax refund.
Early adopter saturation
According to a poll from Ipsos and Yahoo Finance, 57% of respondents said they would not likely purchase an EV as their next car. This could in part be because many who considered making the transition to a cleaner car have already done so.
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EV owners are likely to purchase another EV as their next car and enjoy their vehicle. Sixty-five percent of households who already have an EV and purchased a new car in 2022 bought an electric one, according to registration data from S&P Global Mobility, analyzed by Axios.
A poll from Consumer Reports showed 84% of Democrats think more electric vehicle use will help reduce air or climate pollution. But convincing the mainstream market and customers in Republican-leaning states, which are typically more price-sensitive, is a complex task.