Tax Credit Cuts Put Electric Vehicle Market in Jeopardy
Edmunds analysis says tax credit cuts put mainstream electric vehicle market in jeopardy. New research finds financial incentives don't encourage mass adoption of EV technology, but are vital to sustaining sales. However, the latest AudienceSCAN survey finds there is a demand among car shoppers: 4% are considering hybrid/electric vehicles.
As companies such as Tesla and General Motors launch new electric vehicles designed to attract the masses, a new report from Edmunds shows that without generous tax incentives, it will be challenging for either company to meet sales goals for these vehicles.
"With gas prices at a relative low and the popularity of SUVs and trucks hitting all-time highs, the EV market is at a crossroads," said Jessica Caldwell, executive director of industry analysis for Edmunds. "While the high-end EV market most likely has the ability to hold steady, our analysis shows that the average car shopper still needs a significant financial incentive to choose an electric vehicle over a traditional counterpart."
Dealers can advertise the many benefits of EVs to remind consumers to consider this option when shopping for cars. The latest AudienceSCAN survey found 71% of Hybrid/Electric Car Shoppers took action after seeing ads in the newspaper (print, online, mobile or tablet) in the past month.
To get a deep understanding of how financial incentives for EVs affect the market, Edmunds experts conducted an extensive analysis of what happened in Georgia following the expiration of their EV tax credit as a model for what could happen should policy shift at the federal level. Edmunds learned that:
- Georgia's tax credit created a market for mainstream EVs that didn't naturally exist: Though sales of all EVs spiked while the tax credit was in effect, sales of the Nissan Leaf dropped off sharply once the tax credit expired. Sales of the Tesla Model S also dipped once the tax credit expired, but then quickly rebounded to the same level they were at when the credits were in effect.
- Georgia's tax credit mainly incentivized wealthy car buyers. In 2015, the last year the tax credit was in effect, 41 percent of all EV buyers in Georgia made over $150,000 a year (38 percent if you eliminate Tesla buyers). Only 16 percent of all car buyers in Georgia in 2015 made more than $150,000.
- Once tax credits are eliminated, lease payments on EVs jump sharply. The lease market for EV vehicles is heavily dependent on tax credits because residual values of EVs tend to be much lower than their traditional vehicle counterparts. In the case of the Leaf in Georgia, the average monthly lease payment was $132 while the credit was in effect, but shot up to $290 once it was eliminated.
- Green shoppers are more deal-hungry than traditional shoppers. Traffic to Edmunds manufacturer incentives and rebates pages was 120 percent higher among those shopping for EVs, plug-in hybrid vehicles and hybrids than those shopping for their non-green counterparts.
Local dealerships can emphasize tax credits and other money-saving benefits of driving EVs with TV spots focusing on this market segment. The most recent AudienceSCAN study revealed 51% of Hybrid/Electric Car Shoppers took action after watching TV spots in the past month.
While sales of PHEVs and EVs have grown over the last five years — 136,295 in 2016 compared to 17,425 in 2011 — they still only constituted 1 percent of the market at the end of the first quarter of this year.