Starting in January, buyers of electric vehicles (EVs) in the U.S. will be able to apply the $7,500 federal tax credit upfront at the dealership, instead of waiting to receive the money as a refund when filing their tax returns with the IRS. The purpose of this change is to boost sales of EVs, which currently make up a small share of vehicles on the road and are generally more expensive than their gasoline-powered counterparts.
According to Stephanie Brinley of S&P Global Mobility, American consumers have two primary concerns when purchasing a new vehicle: simplicity and a focus on monthly payments rather than the overall purchase price. The new instant rebate addresses both of these concerns. By allowing buyers to borrow less money upfront, it immediately affects the monthly payment price, making EVs more affordable.
Similar upfront incentives have proven to be successful in the past. Research by economist Erich Muehlegger from the University of California, Davis, showed that instant sales tax waivers had a greater impact on hybrid vehicle adoption compared to tax credits that offered more money but were received later. Sales tax waivers were easier to claim and were applied at the time of purchase.
Automotive dealers, such as Greg Soulliere in St. Petersburg, Florida, expect the instant rebate program to help boost sales of EVs. Soulliere believes that being able to receive the rebate upfront instead of waiting for a tax refund will make EVs more appealing to customers.
In states that offer additional incentives for EVs, such as Colorado’s $5,000 state incentive, the affordability of EVs is further enhanced. Clay Stranger from the clean energy think tank RMI stated that combining the $7,500 federal incentive with state incentives can result in up to $13,000 of available tax credit, which helps reduce the cost premium of new electric vehicles.
Despite the potential cost benefits, EV adoption is still hindered by concerns about charging infrastructure, particularly in rural areas. Darren Whitehurst from the Texas Automobile Dealers Association pointed out that charging stations are not yet widely available in rural regions, making it unlikely for consumers in those areas to choose EVs over traditional vehicles.
While the new federal program aims to stimulate consumer demand for EVs, it may not have a significant impact in states with existing limitations, such as inadequate charging infrastructure or lack of incentives beyond the federal credit.
