Biden’s Tax Credits Encourage Americans to Lease Electric Cars

Stay Informed with Free Updates

Sign up for the Electric Vehicles myFT Digest and receive regular updates directly in your inbox.

Subscribe now to stay informed about the latest news, trends, and developments in the world of electric vehicles.

Leasing Surges as the Preferred Choice for Electric Vehicle Shoppers

Car shoppers have increasingly opted to lease electric vehicles (EVs) this year instead of purchasing them. This shift in preference is attributed to the availability of a $7,500 tax credit under the Biden administration’s clean energy subsidies.

According to data from Edmunds, an online car shopping guide, 52% of EVs were leased in November, compared to only 8% in November 2022. In contrast, the lease rate for cars with traditional engines was 22%.

Unlocking the Benefits of Leasing

Leasing provides car shoppers with the opportunity to fully utilize the $7,500 tax credit included in the Inflation Reduction Act, regardless of whether the vehicle meets the North American production benchmarks required for purchased cars. This legislative workaround allows consumers to embrace electric vehicles while expanding their choices, contrary to the law’s intended goal of boosting North American EV manufacturing.

“The percentage of EVs that we’re leasing has gone up dramatically,” said Bill Stephens, general manager of Norm Reeves Hyundai Superstore in California. “If you lease the car, you qualify for the $7,500 tax rebates, and I would say that’s by far the number one reason.”

Leasing: A Popular Choice Among Early EV Adopters

Leasing has been the preferred choice among early adopters of electric vehicles. In November 2020, 65% of electric vehicles sold were leased, more than double the rate for cars with traditional engines. These leaseholders anticipated advancements in battery technology and range, enabling them to avoid being stuck with early-stage EVs.

The Rise and Fall of Leasing Rates

However, leasing rates for EVs began to decline in 2021 and continued to drop throughout the year, reaching a low of 7% in September and October. The scarcity of new cars due to supply chain shortages and the discontinuation of lease subsidies by carmakers contributed to this decline. Additionally, EVs depreciate at a faster rate than gas-powered cars, making leasing as expensive as buying.

Fortunately, the situation has changed, and leasing is now a financially compelling option. The application of the tax credit makes monthly payments more affordable for lessees.

Unlocking Cost Savings with Leasing

A report by Energy Innovation, an energy and climate policy firm based in San Francisco, revealed that the federal tax credit makes average monthly lease prices 12% cheaper for leased EVs compared to gasoline-powered alternatives in most states. This cost advantage arises from lower operating costs and other factors associated with EV ownership.

The Categorization of Leased EVs

The US Treasury Department clarified that leased EVs are considered “commercial” under the Inflation Reduction Act. This categorization exempts commercial electric vehicles from the requirement of assembly in North America or the inclusion of a specific percentage of North American parts to qualify for the full tax credit.

While this practice has its critics, carmakers are motivated to ensure their customers can benefit from the full tax credit. By enabling leasing, carmakers can make EVs more affordable and attract more buyers who may not meet the purchasing requirements.

Hyundai and Kia: Beneficiaries of the Leasing Trend

Korean carmakers Hyundai and Kia have experienced the positive impact of the leasing trend. Leasing provides customers new to these brands with a sense of security, and with prices starting at just over $40,000, Hyundai and Kia EVs are among the most affordable options in the market.

Furthermore, Hyundai and Kia’s EV offerings are even attracting customers who previously owned luxury vehicles. Trade-in data from Edmunds shows that for the electric Kia EV6, 21% of the trade-ins are luxury cars, compared to only 6% for other Kia models.

“This is the cool thing to drive now,” Stephens said. “We’re seeing a lot of luxury trade-ins for the Ioniq 5s and Ioniq 6 EVs. The EV is so different that it still gets parked in front when customers arrive with it.”