Planning to Buy an EV? Here's Why You Should Do It Before October
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Less than a week remains for car shoppers to take advantage of the EV tax credit, a relatively new incentive that was terminated by the sweeping tax law President Donald Trump signed in July.
For shoppers considering electric vehicles, claiming the EV tax credit while the opportunity is still available could save thousands of dollars. Officially, the last day to claim the tax credit is Sept. 30 (Tuesday), but the IRS put out an update last month allowing extra time for some shoppers.
According to the new IRS guidance, a buyer just needs a "written binding contract in place" by the final day of the credit — it's fine to take possession of the vehicle at a later date.
Since January 2023, the EV tax credit has provided a discount of up to $7,500 — available at the time of purchase — for qualifying electric vehicles and eligible buyers. A used EV tax credit of up to $4,000 that was implemented at the same time is also being terminated on Sept. 30.
After the EV tax credit was expanded in August 2022 with the Inflation Reduction Act, there was a sense in the industry that an EV revolution was underway. Automakers like Hyundai and General Motors were releasing new electric models, and battery technology was improving while electric prices were becoming more affordable. However, three years have passed and most American consumers are still showing a preference for gas and hybrid cars. With the end of the tax credit around the corner, EV adoption could soon slow to a halt.
Time is running out to claim the EV tax credit
Car shoppers appear to be jumping on the last chance to get an EV with the government-subsidized discount.
EV demand was up 33.3% year-over-year in August. Electric vehicles are selling faster because consumers are looking to beat the tax credit cutoff, according to a new report from Cars Commerce, the parent company of Cars.com. The tax credit's impending sunset is pulling ahead purchases, as the subsidy amounts to a "discount worth about 11% of an average EV’s price," according to the report.
Cox Automotive predicts that this quarter (July to September) will set a new record for EV sales, beating the previous high of 365,824 in the fourth quarter last year.
Looking for an EV before the end of September? The end of the quarter is often the best time to shop for a new car, and you have about 20 electric models to choose from that are eligible for the tax credit. Vehicle eligibility factors include the "MSRP, its final assembly location, battery component and/or critical minerals sourcing," according to a government website. Requirements include final assembly of the vehicle taking place in North America and the sticker price not exceeding $80,000 on SUVs, vans and trucks or $55,000 for other vehicles. To qualify, a buyer's income must be below $150,000 for single filers (or $300,000 for couples).
Major discounts are also available on EV lease deals thanks to tax credit subsidies. For EV leases, the eligibility rules around the tax credit are actually looser.
Car shoppers are scooping up EVs
EV demand is expected to be strong until the tax credit is gone. Then, the sales outlook weakens.
"With the IRA tax credit set to expire at the end of September, urgency is likely to remain high," Stephanie Valdez, director of industry insights at Cox Automotive, wrote in an EV market report last month. "As policy support winds down, the market’s ability to respond to real-time demand and brand-level dynamics will be critical in shaping the next phase of growth."
The price of a new EV was around $57,200 in August, according to Cox Automotive, and EVs were about $8,200 more expensive on average compared to other cars.
The tax credit has made up a lot of that price difference. But without it, slower EV sales could force increased discounting from automakers and dealers this winter. Still, no one can predict the future, so if you're planning to buy an EV, your best bet is to shop before the credit disappears.
Consumer Reports is reminding consumers to shop responsibly. "Don’t panic-buy a car in a rush just for the sake of getting the tax credit," Alex Knizek, associate director of auto test development, said in a recent article. As the clock winds down on the EV tax credit, sign the paperwork on a new electric car only if it truly fits your needs and budget.
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