Electric Cars: The Good News and the Bad News

Electric Vehicles: The Good News and the Bad News

As of March 26, 2019, General Motors, LLC (GM) crossed their appointed electric car (EV) threshold of 200,000 EVs sold, marking their official entry into the race to the tax credit finish line. The GM tax credit, issued through the Energy Improvement and Extension Act of 2008, started at its peak value of $7,500. Hitting the 200k threshold signals a year-long phase-out, dropping to $3,750 for every EV sold from April 1 ‑ October 1, 2019, and $1,875 for every EV vehicle sold over the following two quarters. The GM tax credit is set to expire on March 31, 2020, unless automaker lobbyists and the proposed bipartisan Driving America Forward Act successfully extend or evolve the credit system.

Congress approved the initial tax credit in favor of advancing EV technology with automakers and incentivizing consumer buy-in. The credit has officially done its job with GM and Tesla, but brand advocates insist that the initial threshold was set too low. As Congress and lobbyists work out the next phase of the plan;

• Automakers may choose to withhold investment in new EV technology and production temporarily
• Consumers will have less incentive to purchase their plug-in electric cars

The tax credit is rife with criticism and faces the constant threat of being dismantled. However, it is unlikely that it will altogether disappear. Politicians and manufacturers will continue to discuss their options, but in the meantime, auto dealers should anticipate temporary shifts in consumer demand. Here are a few things to keep in mind as you consider your 2019 selling strategy.

Electric Cars: Consider Resale Value

Longer-range EVs (200+ miles per charge) are showing good resale value. According to Kelley Blue Book (KBB), the Tesla Model 3 is expected to retain 64.3% of its original value after three years. This model topples the average three-year residual value among all new vehicles at 51.7%. If Tesla’s tax incentive expires as planned on December 31, 2019, dealerships can expect used car prices to rise.

Other long-range electric models have promising retail value, including the Jaguar i-Pace (52.8%) and Audi e-Tron (52.5%); however, shorter-range vehicles like older-model Hyundai Ioniq Electric and the Nissan Leaf fall into the 30 percent range of retained value.

Manufacturers are responding by introducing competitive long-range models, like the Hyundai Kona Electric and the Kia Niro EV. Dealerships should pay close attention to the resale trends among these vehicles, so they can communicate these advantages to their customers and better position their used electric car inventory.

Electric Cars: Anticipate Objections

There are many barriers to the mainstream adoption of electric vehicles.

• The cost of ownership is higher than a conventional car, even with the tax credit.
• The mileage per charge on many EVs fall in the 120 range.
• Recharging stations are few and far between.
• The charging process takes too long.

In addition, Senator John Barrasso (R-WY) and Representative Jason Smith (R-MO-8) recently introduced legislation to impose a federal highway user fee to offset the gas tax that EV drivers avoid and the overall cost of an electric vehicle. It makes you wonder how on earth an auto dealer is supposed to sell these things!

While the future of the EV tax incentive is somewhat murky, and the barriers above are not likely to disappear overnight, there are still buyers that want (or need!) an electric car.

Your target customers will likely fall into one of the following categories.

• Families that need a low-cost option for local driving
• People who have a long commute for work
• Clean-air advocates that can put their money where their mouth is

Leverage Your Opportunities

• For new car buyers, the most apparent benefit that dealers can sell is the tax credit. If you are a GM or Tesla dealership, you have an angle to play – the tax incentive is expiring, but not today.
• For non-GM and Tesla dealerships that expect a surge in long-range EVs, your strategy is to inform buyers to get in early while they are still eligible for the full tax credit.
• For used car buyers, laud the benefits of lower-range electric vehicles. While these buyers cannot claim the tax credit offered to the original owners, they can still take advantage of the native benefits of battery dependent vehicles. These cars are the perfect low-cost option for around-town use.
• For all buyers, highlight the EV resale value trend. While this isn’t a primary selling point, it does underscore their overall desirability and benefits.

If you have questions about how your dealership should respond to disappearing tax incentives or how you can position your electric vehicle fleet to a new audience, contact John Comunale or Keith Laudenberger in our office at 301.986.0600.

Councilor, Buchanan & Mitchell (CBM) is a professional services firm delivering tax, accounting and business advisory expertise throughout the Mid-Atlantic region from offices in Bethesda, MD and Washington, DC.