EVs Near Tipping Point In U.S. Market

Are battery-powered electric vehicles at a tipping point? The car companies and their dealers sure hope so.

Charlie Chesbrough, senior economist for Cox Automotive, said in a recent presentation sponsored by the American International Automobile Dealers Association that based on world markets like China and in Europe, where EVs are more popular, EV adoption really starts to take off, once EVs reach 5% share in a given market.

Beyond that point, people seem to reach a comfort level where EVs no longer seem so novel and risky, he said.

By that standard, electric vehicles may already be at the “lift-off” point in the U.S. market. According to Cox Automotive, EVs accounted for 5.5% of U.S. auto sales in 2022, and 6.9% year to date, in 2023.

A total of 23 countries have reached the 5% tipping point, according to Cox Automotive. If the U.S. market follows a similar trend, it becomes more plausible that EVs could account for up to 25% of U.S. new-vehicle sales by 2026, the theory goes.

Around the world, government incentives are a big enabler. In the U.S. market, there’s a federal tax break of up to $7,500 for qualified EVs, plus state tax incentives in many cases.

Cox Automotive says that without the $7,500 federal tax break for buying an EV, the average monthly lease payment on a $50,000 EV for a 36-month lease is $676. With the $7,500 applied as a “capital cost reduction”—the leasing equivalent of the down payment on a loan—the monthly payment is $454, a monthly savings of $222.

The auto industry has a lot—everything, really—riding on successfully phasing in EVs and phasing out internal-combustion engines. According to Cox Automotive, automakers have more than 100 additional EV models in the new-product pipeline, due to go on sale in the next three years.

Meanwhile, leasing for electric vehicles is set to take off, too, Chesbrough said. That’s because under the Inflation Reduction Act passed last year, a lot of foreign-brand EVs that are assembled in other countries are no longer eligible for the tax break.

However, there’s a big loophole, which is that EVs that are leased are counted as business purchases. That means they qualify for the full $7,500 incentive, but for leases only—not for loans.

EV adoption, and a preference for leasing, are higher on the U.S. coasts and some inland cities.

But another potential hurdle for EV adoption is that leasing as a financing method is less popular in the middle part of the United States—the same regions where people are also the most skeptical about EVs.

Dealers in Middle America may have to sell an electric vehicle, with an unfamiliar power source, and a lease, an unfamiliar finance method, all in the same transaction, Chesbrough said. That could be a “double whammy” against EVs, he said.