Buying & Selling

Maintenance

Finance & Insurance

Car Care

Road Scholar

Buying & Selling

Maintenance

Finance & Insurance

Car Care

Road Scholar

The EV Tax Credit Conundrum: Why Leasing is the New Buying

The EV Tax Credit Conundrum: Why Leasing is the New Buying

Written By

Lewis C. Smith

Published

Oct 17, 2023

EV Being Charged
EV Being Charged
EV Being Charged
EV Being Charged

Discover why leasing electric vehicles is becoming a smarter choice amidst changes to the federal EV tax credit program. Explore now!

What Changed

In recent months, the electric vehicle (EV) landscape in the U.S. underwent significant changes, particularly concerning the federal tax credits available for EV purchases. As a direct result of the Inflation Reduction Act, the once-extensive list of EVs qualifying for the full $7,500 tax credit has been notably shortened.

The revamped regulations now demand not just that eligible EVs be manufactured in North America, but that their batteries and essential minerals also be sourced from the region. Such criteria have left several previously eligible vehicles with a reduced credit of $3,750 or none at all. However, prospective EV buyers aren’t entirely out of luck.

You can also find the latest information on vehicle eligibility here.

The Lease Loophole

The Lease Loophole

The Inflation Reduction Act classifies leased vehicles as commercial vehicles. This distinction means that, technically, all battery-powered commercial vehicles qualify for the $7,500 credit, even if they don't meet the stringent criteria for purchased vehicles. The decision to include electric car leases for the credit, seen by many as a significant loophole, is attributed to heavy lobbying by global automakers.

The lease approach isn't only a workaround for the reduced EV tax credit list. It offers the advantage of immediate financial relief, reducing monthly payments, as opposed to the wait time of a year or more if one chooses to buy. By next year, buyers will have the option to transfer their purchase credit to the dealer, instantly cutting the purchase price—though the specifics of this provision are still under review.

The Rise of EV Leasing

Dealers and automakers are adjusting to this new landscape. With the heightened appeal of leasing, EV leasing rates are predicted to soar, possibly constituting over half of all EV transactions. Data reinforces this prediction, revealing that leases accounted for 34% of total EV sales in March, a significant climb from 18% in the same month last year.

The general advice for potential EV lessees is to ensure the full value of the tax credit is passed onto them. While dealerships and financial institutions are not obliged to transfer the full tax credit, many use it to make lease payments more affordable. Subaru's recent promotion offers an illustrative example: leasing the 2023 Subaru Solterra through Subaru Motors Finance entitles the lessee to a $7,500 incentive to lower the lease payment.

Why Leasing Makes Sense for Many

Leasing is not just about navigating the tax credit labyrinth. With EV technology rapidly evolving, leasing provides a type of "technology insurance." At the lease's end, consumers can simply return their EV and upgrade to a model with the latest tech, sidestepping concerns about battery degradation or diminished resale value due to advancing technology.

Interestingly, as the EV market matures, lease rates and monthly payments for EVs are becoming more competitive. This competitiveness stems from the strong resale values of EVs, which are perceived as cost-effective, enduring, and technologically agile compared to their gasoline counterparts.

Conclusion

With more EVs entering the market than ever before, the focus is shifting to affordability. Financial incentives, like the $7,500 credit, can dramatically influence consumer choices. As consumers navigate these changes, resources like the CarOracle Auto Buying Program offer invaluable assistance, ensuring you get the best deal and information for your next vehicle purchase. As the landscape continues to evolve, one thing is clear: the shift towards leasing could accelerate America's transition to electric vehicles.

Smart Shopper Insights FAQs

Are autobrokers the equivalent of real estate agents?

Auto brokers and real estate agents both serve as intermediaries in their respective fields, offering similar services that streamline and facilitate transactions for buyers. Here's a closer look at the parallels:

  • Advocacy and Representation: Both professionals advocate for your interests, finding options that match your preferences and budget.

  • Negotiation Skills: They negotiate terms on your behalf to secure advantageous deals, from price to financing.

  • Market Insight: With specialized knowledge of their markets, they guide you to make informed decisions.

  • Time-Saving: They manage the complexities of transactions to save you time and effort.

  • Compensation Structure: In many cases, just like real estate agents, auto brokers' fees are paid by the seller, which means their services can often come at no direct cost to the buyer.

An important distinction to note is the regulatory environment. In California, auto brokers are required to have a dealer license issued by the state, similar to real estate agents who must be licensed to operate. This ensures that they adhere to stringent standards of professionalism and ethical conduct, undergo thorough background checks, and comply with specific transaction codes that govern vehicle sales within the state. While the same level of regulation may not apply to auto brokers in other states, many still operate with a strong commitment to honesty and transparency.

When you work with a licensed auto broker in California, you're engaging with a professional who has met all the necessary requirements to legally and ethically conduct car sales, akin to the rigorous process real estate agents go through for licensure. This not only underscores the credibility of the broker but also provides you with added assurance that your transaction adheres to all state laws and regulations.

What should I look for during a pre-purchase inspection?

A pre-purchase inspection should cover the vehicle's mechanical condition, appearance, and safety features. On the exterior, look for signs of damage or rust, and inside, check for wear and tear, and the condition of the tires. Under the hood, look for any signs of leaks, the condition of hoses and belts, and the state of the fluids. Ideally, a trusted mechanic should conduct a comprehensive inspection, including putting the vehicle on a lift to check the undercarriage, suspension, and to detect any potential leaks or undisclosed damage from an accident. They should also inspect the engine, transmission, brakes, and steering systems, verify the function of warning lights, and take note of any that come on after starting the engine. Finally, a test drive is an essential step to evaluate the car's handling, braking, and overall performance.

Are service records really that important when looking at a used car?

Absolutely, service records are crucial when considering a used vehicle. They provide a detailed history of the maintenance and repairs the car has undergone, giving insight into how well it has been taken care of. Regular maintenance not only improves a vehicle's performance but also extends its life. Observing diligent maintenance intervals also offers insight into the previous owner's responsibility and commitment to vehicle upkeep. If a vehicle lacks service records, it might be challenging to determine its actual condition and if critical maintenance tasks were performed as needed.

AutoCheck vs. CarFax: Is one better than the other?

Both AutoCheck and CarFax provide detailed information about a vehicle's history, though they source their data differently. CarFax is known for its comprehensive service and maintenance records and is extensively used by dealerships. In contrast, AutoCheck, owned by Experian, uses a unique scoring system that helps buyers understand a vehicle's condition at a glance. Depending on your specific needs and the level of detail you're looking for, you might prefer one over the other.


What does a rebuilt title or branded title mean?

A rebuilt or branded title indicates that a vehicle has suffered significant damage in the past and was deemed a total loss by an insurance company. This damage might have been due to a collision, flood, or other serious incidents. After the damage, the vehicle was repaired and inspected to ensure it met certain roadworthiness standards. However, understanding the extent of the damage and the quality of repairs is vital as structural deficiencies can be challenging to detect with a visual inspection alone. A branded title can significantly affect a vehicle's value and its potential for future resale. Therefore, it's vital to thoroughly inspect and understand a vehicle's repair history before making a purchase.

Latest Insights

Latest Insights

CarOracle is a California-licensed automotive dealer, License No: 43082, with an autobroker's endorsement, enabling us to represent consumers in the purchase or leasing of new and used vehicles.

©2024 CarOracle. All rights reserved

CarOracle is a California-licensed automotive dealer, License No: 43082, with an autobroker's endorsement, enabling us to represent consumers in the purchase or leasing of new and used vehicles.

©2024 CarOracle. All rights reserved

CarOracle is a California-licensed automotive dealer, License No: 43082, with an autobroker's endorsement, enabling us to represent consumers in the purchase or leasing of new and used vehicles.

©2024 CarOracle. All rights reserved