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As EV Credits Start to Expire, Should You Reconsider an Electric Car?

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Monday, 07 January 2019 02:29 PM Current | Bio | Archive

As the economy began falling deep into the Great Recession in 2008, the federal government sought to shore up the struggling car industry. This resulted in legislation that incentivized car manufacturers to create fully electric plug-in vehicles and for consumers to buy them.

However, the tax credits—via the Energy Improvement and Extension Act of 2008, the American Recovery and Reinvestment Act of 2009, and the American Clean Energy and Security Act of 2009—were not designed to last forever. Many consumers may not be able to enjoy these electric vehicle, or EV, tax credits in the near future. Considering electric vehicles come with different maintenance needs and costs that were offset by the EV tax credits, those in the market for a new or used car may need to carefully consider whether an EV purchase still makes sense.

When Do EV Tax Credits Expire?

The plug-in electric vehicle tax credits are set to expire at different times for car manufacturers. The biggest EV tax credit, which provides a credit of up to $7,500 for new EV buyers, has already started to phase out. These credits were designed to start decreasing once each car manufacturer sells 200,000 plug-in vehicles. Once that threshold is reached, the credit drops to $3,750 and then $1,875. After that point, the manufacturer's car buyers no longer receive tax credits.

Every manufacturer creates and sells a different number of EVs, so the exact expiration date of each manufacturer will vary. However, the eventual expiration date for most manufacturers will be between 2019 and 2022.

At present, General Motors and Tesla are both expected to reach full expiration of their EV tax credits by the fourth quarter of 2019, while cars from other manufacturers such as Nissan, Ford and Toyota may still have a few years left with their vehicle tax credits. 

Several manufacturers are fighting to save the tax credits—after all, they help incentivize car buyers to purchase these vehicles. Still, unless Congress extends the current EV tax credits through legislative action, car buyers should expect these credits to expire for all car companies within the next four to five years.

Is There Still Value in Purchasing an Electric Car?

With EV credits set to expire, car buyers face the question of whether they should purchase an EV soon. Even after accounting for the tax credits, car buyers must consider whether it's cost-effective to purchase an electric or hybrid car over a standard gasoline-powered vehicle.

The answer for consumers will depend on the cost difference in the purchase price, long-term maintenance fees and auto insurance costs associated with electric vehicles.

Are Electric Vehicles More Expensive to Purchase?

With the full weight of the EV tax credits in place, electric car purchases are only slightly more expensive than comparable gasoline-powered vehicles. For example, the electric Chevrolet Bolt LT has a list price of $37,495 but costs only $29,995 for car buyers who qualify for the entire tax credit. By comparison, a brand-new gasoline-powered Chevrolet Impala starts at $28,020.

And in some states, consumers can combine the federal tax credit with a state-offered tax credit that makes it even less expensive to purchase fully electric vehicles over gas-powered cars. States such as Colorado and California, for example, still offer weighty tax credits that are not expiring anytime soon.

Once the federal tax credits expire, consumers will need to consider the list price of electric cars and whether they can use a state-issued tax credit. But these factors are only part of the decision.

Are Electric Vehicles More Expensive to Maintain?

Electric vehicle owners save on certain maintenance and operation costs. For example, the electricity required to operate an EV, measured as an "eGallon," costs about half as much as standard gasoline, according to the U.S. Department of Energy. Americans spent, on average, about $2,000 on gasoline in 2017, according to the U.S. Energy Information Administration. During most of the 2000s, however, Americans spent much more on gasoline: about $3,000 per year.

Electric vehicles are immune to fluctuations in gas prices, which makes the eGallon price fairly consistent. Even during periods of low gasoline prices, electric vehicle owners can still expect to save up to $1,000 per year on gasoline costs.

Americans keep a new car, on average, for around six years, which would result in around $6,000 or more in gasoline savings. Additionally, a recent study found that over the course of 150,000 miles, electric vehicles save owners up to $2,500 in other maintenance costs.

Is Insurance More Expensive for Electric Vehicles?

One common misconception is that electric vehicles are significantly more expensive to insure. For the most part, this is untrue. While electric cars are indeed more expensive to purchase, and pricier cars typically carry higher insurance rates, those rates are not vastly different from similarly priced gasoline-powered vehicles.

In the case of the fully electric Nissan Leaf, insurance premium costs were actually cheaper than a similarly priced vehicle, the gasoline-powered Subaru WRX Premium. In most cases, however, the cost differences between premiums for a fully electric vehicle and a gasoline-powered vehicle were only within 3% to 4% in favor of the gasoline-powered vehicle. This, of course, does not take into account the other savings electric car owners still enjoy, such as state-level tax credits and lower gasoline and maintenance costs.

Are Electric Ears Still Viable in a Post-EV Credit Economy?

There's no clear answer for car buyers once the federal EV credit expires. However, there are a few realities to electric car ownership that won't change.

First, electric cars will continue to be less expensive to own and operate, thanks to lower costs to power the vehicle and lower lifetime ownership costs on maintenance.

Electric vehicle owners can also expect the purchase cost to continue dropping. For example, as electric batteries growing increasingly cheaper to manufacture, car companies will be able to offer the vehicles at a lower list price. Additionally, these batteries will last longer, reducing replacement and maintenance costs.

Nevertheless, car buyers looking for vehicles on the lower end of the market may still be priced out. Although the $7,500 federal tax credit incentivized some car buyers to purchase an electric vehicle, others may not be able to buy one until EV prices drop naturally as well. 

Maxime Rieman is Product Manager at ValuePenguin. Educating and assisting shoppers about financial products has been Rieman's focus, which led her to joining ValuePenguin, a consumer research and advice company based in New York. Previously, she was product marketing director at CoverWallet and launched the personal insurance team at NerdWallet.

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MaximeRieman
Electric vehicle owners can also expect the purchase cost to continue dropping. For example, as electric batteries growing increasingly cheaper to manufacture, car companies will be able to offer the vehicles at a lower list price.
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2019-29-07
Monday, 07 January 2019 02:29 PM
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