The race is on to buy an EV while the $7,500 tax credit is a sure thing. Drivers should still go slow and ask these questions.

MW The race is on to buy an EV while the $7,500 tax credit is a sure thing. Drivers should still go slow and ask these questions.

Andrew Keshner

'Don't rush into it, but be aware the clock is ticking,' said one new electric-vehicle driver

Nick Arnold's timeline to purchase an electric vehicle was once a matter of years.

After "idle conversations" on EVs generally and the specifics of particular models, the 31-year-old Tucson, Ariz., resident was beginning to eye buying one next year.

Then came the November election and reports that the incoming Trump administration was prepared to end a federal $7,500 tax credit for new EV purchases.

So Arnold hit the accelerator and signed paperwork on his metallic blue 2024 Honda $(HMC)$ Prologue days before Thanksgiving.

"I was worried about the EV tax credit going away and didn't want to miss out on that opportunity. This is just a little bit sooner that I planned," he told MarketWatch.

Arnold drove off the lot with a 36-month lease on an electric SUV with $12,000 lopped off the manufacturer's suggested retail price. That included the $7,500 credit applied at the point of sale, he noted.

Like Arnold, it appears there are other car buyers fueled by at least some fear of missing out. New and used EV sales saw a double-digit increase during November and car dealers were happy to help with incentives, according to Cox Automotive.

There was a 10% monthly increase in sales for new and used EVs, and the average transaction price was $55,105 for a new EV and $37,341 for used ones, according to data Cox released Thursday.

Sales incentives grew to their largest size of the year in November, comprising nearly 15% of the average transaction price, according to Cox Automotive.

The incentives do not count the federal tax credits that currently pay up to $7,500 for qualifying new EVs and up to $4,000 on qualifying used EVs, according to Stephanie Valdez Streaty, director of industry insights at Cox Automotive.

Some of the November sales pop reflects buyers taking advantage of the tax credit while they know it's a sure deal, she said. "Many buyers who thought it best to wait to get the best deal are realizing that now is the time to buy before new administration policy changes are implemented," Valdez Streaty said.

David Greene, analyst at Cars.com $(CARS)$, sees the same piqued interest on the car-shopping platform. There was a 30% increase in searches on Cars.com for new EVs last month compared to the same time a year ago, while there was a 5% increase for all new gas-powered and hybrid cars listed on the site.

"With uncertainty around the future of EV tax credits and potential tariffs looming, consumers committed to purchasing an EV should not wait," said Greene.

But people considering an EV now should see a yellow light ahead instead of a green one.

Buying a car is a major financial decision and arguably the second-biggest one most people make after buying a home. The stakes are especially high at a moment when climbing car prices have become a burden for many drivers. One major drawback for EVs has been their higher prices - which is part of why the Biden administration souped up the tax credit to begin with.

Last month, the average transaction price for a new EV was $55,105, according to Cox Automotive data. That's nearly $7,000 more than the price for gas-powered and hybrid cars sold the same month.

So far, Arnold is enjoying his Prologue, which is a major upgrade from the decade-old Honda Civic he used to drive. The $900 monthly lease payment is more of a challenge, he noted - but after paying off the Civic, it's a cost Arnold says he can manage.

Arnold works in the nonprofit sector where he is focused on climate matters, so he acknowledges he was already inclined to be a friendly customer who wants to see the EV market grow. But he also notes EVs won't be the right fit for every driver.

His advice: "Don't rush into it, but be aware the clock is ticking."

How much time do EV shoppers have to take advantage of the $7,500 tax credit?

During the Biden administration, the Inflation Reduction Act of 2022 made an existing tax incentive more generous and added a credit for eligible used EVs. There is a leasing loophole that sidesteps the credit's eligibility rules on car specifications and income limits for buyers. The credits come with restrictions based on the buyer's income level and the type of vehicle, but if they lease the car, those restrictions don't apply.

The law didn't get one Republican vote, and Trump has criticized the legislative nudge towards clean energy for consumers. As the GOP solidified control of the White House and Congress, analysts said portions of the Inflation Reduction Act - particularly the tax credit - seem ripe for repeal as lawmakers next year figure out the tax code's shape.

January 1, 2026 could be the earliest effective date to end the EV tax breaks, according to one outlook. Of course, nothing's for certain at this point.

If the credit is chopped, that seems to be fine with Elon Musk, the Tesla $(TSLA)$ chief executive who has some sway with Trump and Republicans these days. "In my view, we should end all government subsidies, including those for EVs, oil and gas," Musk said last month on X, the social-media platform he owns.

Cox Automotive said Tesla's Model Y and Model 3 ranked first and second, respectively, for sales volume among EVs, followed by the Honda Prologue.

Voters put Trump back in office to carry out "the promises he made on the campaign trail, including stopping attacks on gas-powered cars," said Karoline Leavitt, spokeswoman for the Trump-Vance transition team. "When he takes office, President Trump will support the auto industry, allowing space for both gas-powered cars AND electric vehicles."

Does an EV work for you?

If an EV doesn't feel like a good match, do not force it just to nab the credit now, said Karl Brauer, executive analyst at iSeeCars.com. "You have to have a full understanding and honest assessment of the vehicle's needs and uses," he said.

Many prime candidates for EVs are homeowners, instead of renters, Brauer said. That way, they can install charging equipment without a landlord's hassle or approval.

EV owners also need enough charging-station infrastructure nearby and generally need a "very consistent driving loop" for their work and life, he added. If there's a spontaneous trip, or a longer road trip where charging capacity isn't clear, it could be helpful to have access to a gas-powered or hybrid car, too.

It's easy to find charging-station maps and apps on the internet and on smartphones. But Arnold said EV drivers still need more high-powered, fast-acting charging stations, as he has been personally learning, and that governments at all levels should be building up charging capacity. EVs "might not be for everybody, but the reason shouldn't be because our policymakers fail us," he said.

Arnold is a homeowner and does have a generally set commute, occasionally taking him to and from Phoenix in a 120-mile one-way trip. He recently made a one-way trip, starting with 88% battery and ending with 42%. On the way back, he charged up to 90% during a 45-minute stop and returned home at 40%.

One mental adjustment for him has been driving past gas stations and remembering he doesn't need to make a pit stop, after all.

Even if the EV tax credit leaves, the price breaks may not end

There's an array of state-level tax breaks that would stick around even if the federal tax incentive goes away, according to Cox Automotive. The company's 2025 outlook is anticipating around 15 completely new all-electric vehicles.

It's "very likely" manufacturers will cut their prices by $5,000 to $7,000 if the tax credit ends, said Sam Fiorani, vice president of global vehicle forecasting at AutoForecast Solutions.

Honda has been encouraged by the sales growth of its Prologue, and by the end of December, monthly sales of the vehicle will have averaged over 5,000 a month in the second half of the year, Fiorani said. He noted that all Honda models tend to "benefit from a surge in sales at year-end."

"While industry December sales haven't closed yet, December appears to be another robust month for the electric-vehicle segment, picking up where the industry left off in November," said a Ford $(F)$ spokesperson.

Representatives for other major carmakers, including General Motors $(GM)$, Hyundai (KR:005380) and Kia (KR:000270), did not immediately respond to requests for comment.

No matter the current or future landscape for government and dealer incentives, the hunt still comes back to the right personal fit of finances and lifestyle, Brauer said. "No matter how good a deal, if it doesn't fit your lifestyle, it's a terrible deal," he said.

-Andrew Keshner

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December 21, 2024 07:00 ET (12:00 GMT)

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