How soft is the new EV car market? Some EV vehicles have been on their lots for so long that they're offering lease terms so generous, they may as well be giving them away.
A Kia dealer in Virginia only gets a couple of inquiries a month for EVs. The price tag of new vehicles scares them off, says Finance Director Ramon Nawabi. He's got a few EV 6 SUVs that have been on the lot for six months that Kia is now offering discounted leases on top of the $7,500 EV tax credit “just to move the car,” he says. “In a sense, we’re giving them away.”
That $7500 tax credit helped dealers sell a million EVs in 2022. However, the misnamed Inflation Reduction Act severely limited how that $7500 tax credit could be applied. There are now price caps for EVs ($80,000 for SUVs and trucks; $55,000 for cars), and the batteries must be American-made. Also, the vehicles must be assembled in the U.S. There's also a cap on the net income of the potential buyer.
But you can avoid the restrictions if you lease a new EV. "That’s allowed car companies or dealers to bundle the $7,500 tax credit savings into the lease financing cost, lowering consumers’ monthly payments," reports Bloomberg News.
Dealers say many people shopping for an electric car today aren’t aware that the rules have changed and haven’t budgeted for higher prices. “I think the $7,500 is a must in this climate,” says Andrew Starling, dealer principal at Starling Automotive Group, which operates a Chevy dealership in Orlando and other dealerships in Florida and South Carolina.
The carmaker with the highest percentage of EV leases in the first quarter of 2024 was BMW AG, at 89%, followed by Volkswagen AG’s Audi at 87%. Tesla Inc., the biggest EV maker in the US, leases just 24% of its cars, according to Cox.
Sebastian Mackensen, BMW of North America’s chief executive officer and president, says leasing appeals to customers who like the idea of EVs but aren’t ready to make a long-term commitment to an evolving technology. “You have the flexibility to hand the car back,” he says. Buying an EV can be risky if battery technology or market demand changes and the car loses its resale value.
Also, the bottom has fallen out of the EV resale market. The average price of a used EV fell by 32%over the past year, while the average price of a used gas-powered car fell just 3.6%. It makes no sense to buy a new EV if your purchase loses one-third of its value in one year.
There are enough worries in buying an EV, including charging, lack of choice, and driving range. Now, owners worry when it comes time to sell the vehicle, they’re not going to get much back.
“Consumers didn’t used to be worried about the resale value of an EV, but (Tesla chief executive Elon) Musk cutting prices made people feel like they owe $50,000 on their Tesla and now, it’s only worth $40,000,” said Pat Ryan, chief executive of free car shopping app CoPilot. "When people see the value of an EV drop so dramatically, it creates a new problem."
Republicans are sharpening their knives in coming budget battles to repeal that $7500 tax credit altogether. The only thing that will bring down the price of new EVs is competition, competition, and more competition.
When the federal government figures that out, EVs will become affordable for all.
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