As of March 26, 2019, General Motors (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 between 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. The only other manufacturer to hit the 200,000 EV sales mark is Tesla upon the release of its higher volume Model 3 last year. Tesla and GM have both been lobbying Congress for the cap to be lifted so both manufacturers can continue selling EVs with the full $7,500 tax credit until they can figure out how to make the cars more affordable, thus making them attractive to potential buyers.
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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 and consumers will have less incentive to purchase their plug-in electric cars.
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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 couple of things to keep in mind as you consider your 2019 selling strategy.
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Consider Resale Value
Longer-range EVs (200+ miles per charge) are showing good resale value. According to Kelley Blue Book, the Tesla Model 3 is expected to retain 69.3% of its original value after three years compared to 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.
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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.
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Leverage Your Opportunities
While the future of the EV tax incentive is somewhat murky, there are still buyers that want and/or need an electric car. Your target customers will likely fall into one of the following categories: 1) families that need a low-cost option for local driving, 2) people who have a long commute for work, and/or 3) clean-air advocates that can put their money where their mouth is.
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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.
