EV Sales Surge for Dealers Touting Direct Tax Credit

Dealers who take advantage of the electric-vehicle tax credit sell more EVs, especially used ones, to unexpected buyers, dealers and industry analysts say. The key is leveraging the tax credit correctly in the sales pitch.

“For customers who wouldn’t even think about an EV, (using) the EV tax credit has become an amazing tool to create adoption,” Joel Bassam, president of Easterns Automotive Group in Virginia, tells WardsAuto.

Easterns is primarily an independent dealership group, though it has a Nissan franchise.

How does the EV tax credit work?

New and used EVs qualify for federal tax credits of up to $7,500 and $4,000, respectively, depending on factors including the buyer’s income level and the vehicle’s price.

Beginning in January, the credit could be applied immediately to the purchase price of the EV, creating a lower monthly payment for those who finance. The EV buyer transfers their EV tax credit over to a dealer at the time of purchase.

To receive the rebate, a dealer must register with the Internal Revenue Service.

Previously, EV buyers received the money as a credit at tax time.

As of mid-June, the federal government had issued more than $1 billion in EV tax credits. State tax credits vary but don’t impact the federal credits.

About 20,000 used-EV credits were paid out in the first five months of the year, Scott Case, CEO of EV consulting and consumer information firm Recurrent tells WardsAuto.

“It looks like about 15% of all dealer-sold EVs are getting this credit,” he says. “Actually, that is not too bad for the first five months of the program.”

Creating a process for receiving the credit money is crucial, Bassam says.

Easterns did so, and success now comes down to staff training and diligence to ensure all the IRS forms are filled out at the point of sale, he says.

“The government has been paying us on a very regular clip,” Bassam says.

The Difference Between a Car or No Car

Easterns Auto Group allows its customers to use the $4,000 tax credit as financing, especially for customers with negative equity, Bassam says.

Almost all of its EV sales are coming from customers who weren’t initially considering an EV, he says.

“We are looking into credit and payments that would fit their financial situation. (The lower monthly payment) really softens the gut response” to buying an EV, Bassam says. “It could mean a car or not a car.”

Used EVs Cost Less than Used ICE Vehicles

EVs are still pricier than the average ICE vehicle. According to Cox Automotive, the average transaction price for a new gas-powered vehicle in May was $48,389. The average transaction price for a new electric vehicle was $56,648.  

But used EVs already cost less than used gas-powered vehicles, according to iSeeCars.

In May the average price of a used EV before the tax credit was $28,767, 8.5% lower than the price of a used gas-powered vehicle, iSeeCars says.

More Dealers Signing Up

Dealers in high-cost-of-living areas are not as successful using the tax credit to sell EVs because consumers either make more than the $75,000 annual income cap or, if they make less, often live in multi-family housing where access to charging is more difficult, Case says.

It can also be challenging to determine if a used EV is eligible because it cannot have transferred ownership before Aug. 16, 2022, when the Inflation Reduction Act was signed into law.

Dealers may not know a vehicle’s transfer information because they are “moving cars all the time,” Case says.

Still, more dealers are getting on board.

Some 54% of dealers selling EVs surveyed in the Q2 Cox Auto Dealers Sentiment Index feel prepared to explain the EV tax credit to customers. And more are signing up. In the first-quarter study, 28% were registered; that rose to 35% in the second quarter.

The Q2 2024 CADSI is based on 1,026 U.S. auto dealer respondents, comprising 550 franchised dealers and 476 independents. The survey was conducted from April 23 to May 7.

Cox asked respondents if direct funding –  the new way of applying the tax credit –  was helping them sell EVs. Some 51% said yes, up from 44% in Q1, reports Cox.

It was especially useful to independent dealers, 62% of whom said the tax credit helped them make a sale versus 46% of franchised dealers, says Cox.

Recurrent is compiling a list of all dealers who have registered for EV tax credits. It already has a tool to help consumers figure out if an EV is eligible, Case says.

Sending Business to the Dealer Down the Street

Recurrent sees dealers touting the EV tax credit doing 10 times the volume of used EVs as dealers who aren’t emphasizing it, Case says.

An Ohio Chevrolet dealer told Case that he is “absolutely crushing it” this year on Chevrolet Bolt BEV sales after a lackluster 2023.

The dealership’s approach: If a person on a limited income needs a car, they have them test drive a Bolt. Then, they talk to the buyer about the tax credit.

“They are converting these folks to EV drives like crazy,” Case says.

Some dealers assert their customers aren’t interested in an EV, he says. But they aren’t advertising EVs, so interested customers “are going to the dealer down the street,” Case says.

Easterns trains its entire staff on EV credits and includes a Recurrent resource sheet listing every EV, Bassam says. It also asks customers about their driving habits. Range anxiety is real, and Easterns is creating a referral program for EV buyers to get a home charger, Bassam says.

The dealer group can’t keep enough used EVs in stock. The average inventory across the entire group is 45 days. For EVs, it is 16 days. “We can’t seem to acquire them fast enough,” Bassam says.