Electric Vehicles: Should You Buy This Year?

Has the pain at the pump and Tesla (TSLA) envy got you charged up about electric vehicles?

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An EV or hybrid-engine car will surely lower your per-mile driving costs, and you’ll get racy tax credits and rebates, right?

Actually, take the slow lane on this decision and do your homework. The benefits of an EV or hybrid depend on which vehicle you buy, state incentives, your income, the price and markup premiums you’ll pay and your driving habits.

That Tesla you covet? It doesn’t even qualify for federal EV tax credits. Neither do General Motors’ (GM) Chevrolet EVs.

“I don’t think most consumers know that,” said Ronald Montoya, Edmunds’ senior consumer advice editor. Edmunds is a top consumer guide for new- and used-car shopping.

Plus, prices and markups — the amount dealers charge above the manufacturer suggested retail price (MSRP) — are very high right now, due chip shortages, supply chain issues and inflation. Montoya said consumers are paying markups of “$2,000 to $5,000 per EV.”

Electric Vehicles: Who’s On The Track

Elon Musk is wearing a target as many automakers try to catch up to his company’s lead. Companies including BMW (BMWYY), Ford (F), KIA (KRW), Nissan (NSANY), Hyundai (HYMTF), Volkswagen (VWAPY) and others, have brought EVs to market in the U.S. and elsewhere.

Chinese EV makers BYD (BYDDF), Li Auto (LI), Xpeng (XPEV) and Nio (NIO) are growing rapidly outside the U.S.

Carmakers are investing heavily in EVs. And governments are talking up the transition to cleaner cars.

Many car companies will have more new EV models ready to roll shortly.

Price Premium

EVs, however, don’t come cheap. Consumers paid 14.6% more in May for an EV than they did a year ago, according to Kelley Blue Book (KBB), a Cox Automotive company. KBB says the average price of an EV in May was $64,338, versus $56,140 in May of 2021, not including applied consumer incentives.

Demand and short supply are driving prices up. So, dealers can charge those hefty markups. “These days, sticker price is considered a good price,” said Montoya. And this will likely continue “well into 2023.”

Dealers are also jacking up prices with dealer-added accessories. “Those can go into thousands of dollars more and aren’t negotiable as they’re already on the car,” said Montoya.

Less cars on lots is another frustration. “Dealers have gotten accustomed to making big profits with fewer vehicles,” said Montoya.

Another cost? Car insurance. Some EVs and hybrids may cost more than gas cars to insure. That’s due to more expensive parts that must be replaced in an accident, says Montoya.

Tax Credit, Rebates

Still want to buy? Make sure you study up on the tax credits and rebates and how they apply.

First, only EVs and plug-in hybrids from makers who’ve sold less than 200,000 EVs currently qualify for the federal EV tax credit. Plug-in hybrids can be charged at home or at EV power stations. They use electric power until it’s gone, then switch to gas engines. Standard hybrids use their gas and electric motors interchangeably, and their batteries charge as you drive.

Standard hybrids “don’t qualify for any incentives,” according to Scooter Doll, writer at Electrek, a website that covers electric mobility.

The federal credit can be as much as $7,500, but you only get it when you do your taxes for the year. And it doesn’t apply to the car’s selling price or your payments, says Montoya.

One caveat: If you lease an EV that qualifies for the federal electric vehicle tax credit, the credit goes to the automaker. Some automakers may offer you a discount on your lease because of this, says Montoya.

And, you only get as much of this credit as you can apply to your income for the year. So if you’re retired, and have little taxable income, you may get a credit of much less than $7,500. Plus, “if you don’t get to take all of it you don’t get to carry it forward,” said Montoya.

States also offer rebates and incentives for EV purchases. For example, in California, EV buyers can qualify for a $2,000 to $4,500 rebate or a grant up to $5,000 under the Clean Vehicle Assistance Program on top of any federal credit received (all rebate and grant amounts are based on income), according to Doll. Some EVs buyers can also get access to priority driving lanes and prime EV parking, notes Doll.

And if you have your heart set on an EV by a big carmaker who has been in the EV market for a while, now may be the time to shop. Why? Because their EVs may be close to losing the federal tax credit as they reach the 200,000 EV sales limit.

“The biggest one to worry about is Toyota (TM), which is close to reaching 200,000 threshold,” said Doll.

Maintenance And Range Anxiety

EV buyers’ biggest concern is often driving range. But Montoya says range anxiety may be overblown. “The perception is that you need a ton of range in your car,” he said. But in actuality, “most people don’t drive more than 40 or 50 miles per day.”

However, if you do take a road trip in an EV it requires a bit more planning to power up. At a fast charging station, it takes “18 to 30 min to get to 80% charged,” said Doll.

If you’re considering an electric vehicle or plug-in hybrid, you’re also going to want to have a 240-volt plug your garage. You may already have one, or you made need to have an electrician put one in. Yes, you can plug in to a 120-volt plug, but “it’s a trickling output, so you’re looking at days not hours to get a full charge” on your EV, said Doll.

And keep in mind that plug-in hybrids have a short electric range — between 30 to 50 miles, says Doll. But their overall range is quite high, since they have the gas engine as well.

However, with any hybrid car you’ll still be maintaining a gas engine. With a pure EV, “the longevity is increased and the risk of issues is decreased,” said Doll.

With battery vehicles “you’ve removed so many moving components, and there are none that require fire or oil or gasoline to operate,” said Doll. “They’re so simplified it’s just easier to drive and maintain them.”

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