EVs Here to Stay, But Not Tax Breaks

DETROIT – Battery-electric vehicles are here to stay. But the same can’t be said of the hefty tax credits for people who buy them.

The federal government credits of up to $7,500 “will go away,” says Akshay Singh, a partner specializing in automotive strategy and operations at PwC, a consultancy and accounting firm.

That could slow down dealership BEV sales even more. As WardsAuto reports, now is the time for dealers to push BEV sales.

Many dealers had fully committed to selling BEVs. But as unsold inventories back up, dealers have voiced reservations about government-mandated timetables designed to pivot the U.S. to a BEV world. Accordingly, automakers began scaling back BEV production.   

A couple of reasons are cited for the anticipated demise of those EV tax credits that the Biden Admin. instituted as “temporary.”

First, major financial breaks are not “sustainable” as a permanent consumer incentive for the automotive sector “or for any industry,” Singh says.

Second, President-elect Donald Trump and many members of the incoming Congress are no fans of them. Some political observers predict Trump will target the BEV tax credits in year-one of his term. Indeed, a Trump transition team focused on automotive policies is recommending eliminating the Biden tax credits, according to Reuters. 

Singh cites the usual suspects for BEVs not taking off to the degree once expected:

Perhaps the biggest BEV sales impediment – at least currently – is that most of them are priced for the upmarket, not the mass market, although many automakers say they’re working on introducing more-affordable fully electric vehicles.

Excluding incentives, BEV prices remain 20% to 40% higher than conventional vehicles with internal-combustion engines, Singh says.

“Forty-five percent of U.S. customer demand is for vehicles under $45,000, but only 14% of current EV models serve this market,” he says.

Despite automaker price cuts driven by slowing demand, BEV average transaction prices have reached $48,000, up 20% from 2021, according to PwC.

The firm, formally called Price Waterhouse Coopers, predicts that by 2030, BEVs will account for 30% of new vehicle sales.

But Singh says there won’t be mass adoption of BEVs until their “vehicle economics match those of ICE vehicles,” with prices more aligned to consumers’ willingness or ability to buy them.

“Reduced consumer incentives will further hinder the economic equation,” Singh says.

Combined U.S. sales of hybrid, plug-in hybrid and battery-electric vehicles rose to 16.3% of total new light-duty vehicle sales in 2023, according to Wards Intelligence. Of that mix, full-electric vehicles accounted for about 7%.

U.S. Auto Sales Outlook

Meanwhile, PwC says new-vehicle sales in the U.S. will increase to16 million this year, up nearly 10% from 2022 but still 10% short of pre-pandemic levels.

Wards Intelligence is slightly less bullish. It forecasts U.S. sales of 15.8 million units this year; 16.1 million in 2025; 16.5 million in 2026; 16.7 million in 2027; 16.8 million in 2028; and 16.6 million in both 2029 and 2030.

Regardless of propulsion systems, affordability is expected to continue as an issue, with fewer entry-price vehicles available compared with the last decade, says Haig Stoddard, Wards Intelligence’s principal analyst-forecasting.

He adds, “Vehicles are lasting longer, and the average driver will be putting fewer miles per year on their vehicles.” That’s expected to lengthen many auto consumers’ buying cycles, he says.

Stoddard anticipates automakers will continue to keep dealer inventories from becoming excessive, “resulting in stronger pricing power and lower volumes.”

Prior to the double whammy of a full-blown COVID pandemic followed by nearly two years of supply-chain-related vehicle inventory shortages, U.S. new-vehicle sales had a run of more than 17 million units annually from 2015 to 2018. Deliveries were just under 17 million in 2019.

But after COVID took hold in 2020, sales fell to 14.4 million that year.

PwC predicts the industry will return to 17 million by 2030 as gross domestic product growth continues.