Americans lease electric cars for Biden tax credits
Around 52% of EVs were leased in November 2021 as customers took advantage of a $7,500 tax credit from the Biden administration’s clean energy subsidies. Leasing allows car shoppers to apply the full tax credit to an electric vehicle, regardless of whether the car meets benchmarks for parts produced in North America that apply if the vehicle is purchased. A report by Energy Innovation found that the federal tax credit makes average monthly lease prices 12% cheaper for leased vehicles, making almost every EV model cheaper to lease than gasoline-powered alternatives in most states.
Increased Interest in Leasing Electric Vehicles
In 2022, car shoppers showed a significant propensity towards leasing electric vehicles (EVs), leveraging a $7,500 tax credit under the Biden administration’s clean energy subsidies. According to Edmunds, a leading online car shopping guide, about 52% of EVs were leased in November, a substantial rise from 8% in November 2022. The lease rate for cars with conventional engines was only 22%.
Leasing permits car shoppers to fully utilize the $7,500 tax credit from the Inflation Reduction Act on an electric vehicle, without meeting North American production benchmarks required for purchased vehicles. This approach promotes EV manufacturing in North America and supports climate change objectives by widening consumer options for electric vehicles.
Shift in Consumer Trends
The trend towards leasing was initially most popular among early electric vehicles adopters, with 65% of EVs sold in November 2020 being leased. However, this rate began to decline in 2021, bottoming out at 7% in September and October of the same year. This decreased leasing rate was a result of tightened new car inventory due to supply chain shortages and the cessation of lease subsidies by carmakers. Coupled with the high depreciation rates of EVs, leasing became as costly as buying, explained Jessica Caldwell, executive director of insights at Edmunds.
Revived Interest in Leasing
Now, leasing EVs has become a more financially attractive option as the application of the tax credit has made monthly payments more affordable. A report by Energy Innovation, a San Francisco-based climate policy firm, found that the federal tax credit reduced average monthly lease prices by 12% for leased vehicles, making EVs cheaper to lease than petrol-powered cars in most states.
The US Treasury Department clarified that leased EVs were categorized as “commercial” by Congress in the IRA, as the vehicle title belongs to either the dealership or finance company. Commercial EVs are not required to be assembled in North America or have a specific percentage of their parts from there to receive the full tax credit.
Carmakers and Consumers Benefit
Despite some criticism, many carmakers are supporting the lease trend as it allows their customers to qualify for the full tax credit, thereby boosting sales. Notably, Rivian, one of the most competitive all-electric carmakers, recently introduced a leasing option for its R1T pick-up truck.
Korean carmakers Hyundai and Kia have also seen benefits from this trend. Leasing provides a safety net for customers new to the brands, and with prices starting at just over $40,000, they offer some of the least expensive EVs.
Interestingly, these brands are attracting customers trading in luxury vehicles for their electric offerings. For instance, only 6% of vehicles traded in to purchase a new Kia are luxury models, but for the electric Kia EV6, 21% of the trade-ins are luxury cars. Hyundai has reported similar figures.
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