With an estimated price of $369 billion, the Inflation Reduction Act (IRA) contains many provisions that make electric vehicles more attractive to drivers, but it won’t be the right choice for every new car buyer. The public may be wondering if it’s finally time to buy an electric vehicle or if it’s better to wait.
While the higher upfront costs of EVs over conventional vehicles may be the first deviation, a savvy consumer will pay more attention to the overall cost of vehicle ownership. According to the U.S. Department of Energy, EVs cost about 4 cents less per mile in maintenance costs because there are no engine oil, timing belts, oxygen sensors or spark plugs to take care of. Compared to a petrol vehicle, the cost of ownership of EVs can equal the cost of ownership of a gas vehicle after 5 to 8 years of use, even without subsidies, as a study published in a leading peer-reviewed journal suggests. If gas prices rise or electricity prices remain low, or if a short-range EV model is used, higher upfront costs will be more quickly compensated. In addition, EV enthusiasts point to benefits such as the use of HOV lanes, faster acceleration, quieter rides and less time spent in the body shop.
There’s another aspect of EVs that makes them unique: Unlike an undervalued asset like a new toaster, EVs can potentially bring significant returns to their owners as vehicle-to-grid (V2G) applications become more common. These allow the EV owner to sell electricity from their vehicle’s battery back to the grid when demand is high.
Who Should Consider Buying an EV?
Fans of Tesla and GM electric vehicles can rejoice that the IRA removed a limit that previously disqualified these EVs from tax credits after the manufacturer sold more than 200,000 vehicles. Qualifying EVs are now eligible for the government’s $7,500 tax credit. The IRA also authorized a new tax credit of $4,000 for used clean vehicles, up to a maximum selling price of $25,000. However, some new restrictions also apply. The IRA sets income ceilings for taxpayers to qualify and excludes high-income earners (for example, $150,000 for joint returns and half that for single taxpayers).
The restrictions do not end here. For vehicles to be eligible, the IRA specifies where the battery components and critical minerals used in their manufacture must be extracted or processed. As specified by the Congressional Research Service, eligible vehicles must be assembled in North America to support a US battery supply chain. Final assembly for each car can be easily checked by entering the vehicle identification number (VIN) and model year into a VIN Decoder.
If your household income and your vehicle qualify for the discount, there is another important point to consider: access to charging infrastructure. Charging can be done at home, at work and in public places, and there are a number of apps that map out available charging locations. It is equally important to have access to a clean electrical mix that will maximize the environmental benefits of owning a clean vehicle. There are many options for supplying clean(er) electricity, from installing solar panels on the roof of your home, to purchasing clean electricity from a utility or subscribing to a community solar project.
An EV may make the most sense as a second less used car for long-distance driving. For shorter round-trip trips, EV owners can avoid feeling range anxiety, fear of running out of battery while on the road with nowhere to charge nearby.
Who Should Wait?
Despite the above advantages, there are a number of solid arguments in favor of waiting for an EV purchase. These could be that the charging conditions are less than ideal. Additionally, the IRA tax credit provisions are unlikely to disappear for another 10 years, and there is no official limit on the amount of tax credits that can be allocated or the number of vehicles that can be purchased with the tax credit. Currently, EVs are catering mostly to urbanites without children and are geared towards the luxury segment, although electric vehicle model offerings are increasing every year. There may be a wider range of family-friendly models on the horizon.
Another great reason to wait is the prospect of a breakthrough in battery technology that could drastically increase the range of EVs or reduce their cost. So far, it has been observed that battery technology does not obey the famous Moore’s law the way computer chips do.
It could also be the case that one’s electricity is too expensive to justify buying an EV. For example, a study conducted in Los Angeles showed that electric cars may only be affordable for about 17% of district drivers, but can provide savings for households in LA County’s outer ring suburbs. This is largely due to electricity costs, which continue to play an important role in determining the desirability of EV ownership.
There are many reasons to adopt an EV today, including generous tax benefits, lower maintenance costs, and of course, environmental benefits. However, technology is evolving rapidly and not every driver has access to easy charging or access to clean energy to power the vehicle. At the end of the day, the best option will vary from driver to driver. However, the direction the country is heading is clear: there will be more and more electric vehicles on the road as clean vehicle sales continue to outpace conventional cars.