Prime Borrowers, Affordable Models and Tax Credits: The EV Sales Opportunity

Here’s more evidence that now is the time for dealers to move both new and used EVs.

Not only does Experian’s just-released “State of the Automotive Finance Market Report: Q3 2024” show EVs made up 10.06% of new-vehicle financing during that quarter – up 30% from the same quarter in 2023 – but it also shows 66% of prime and super prime borrowers financed used vehicles. Although those vehicles aren’t all EVs, it is an increase from 65.47% the previous year. That suggests those low-risk buyers might help clear some excess used EV inventory.

“This growth in EV financing is largely due to two factors: the EV tax credit and the introduction of more affordable models,” says Melinda Zabritski, Experian’s head of automotive financial insights. “While vehicle prices, particularly for EVs, remain a critical factor in purchasing decisions, many consumers are leveraging leasing incentives and rebate programs to make the overall cost and monthly payments more manageable for their budgets.”

Although a decision has not been made, many predict the upcoming Trump Admin. will discontinue the EV tax incentive. The $7,500 federal Clean Vehicle Tax Credit was enacted as part of the Biden Admin.’s Inflation Reduction Act and was meant to be temporary. That may short-circuit some buyers’ EV interest, although manufacturers may offer extra incentives for various models.

But even if the tax credit disappears, EV leasing may continue to grow. According to Experian, leases accounted for nearly 45% of all new EV transactions in Q3 2024, a substantial increase from 24.97% in 2023 and 9.53% in Q3 2022. A key driver of this growth could be the lower monthly payments associated with leasing.

For instance, the average monthly lease payment for a new EV was $198 less than the average monthly loan payment during Q3 2024.

Fueled by increased availability of new inventory and attractive incentives, automakers’ captive finance companies dominated the market, accounting for 58.67% of new-vehicle financing in Q3 2024. Banks followed with 22.65%, credit unions with 10.07% and finance companies with 6.52%.

Experian reports the impact of these changes was also evident in other market trends. Although the average loan amount for a new vehicle rose slightly to $41,068 – up $736 year-over-year – the average monthly payment increased by just $5, reaching $737. Meanwhile, the average interest rate for new-vehicle loans dropped from 7.09% in Q3 2023 to 6.61% in Q3 2024.

“We’ve observed the effects of improved new-vehicle inventory over recent quarters, bringing stability to the market,” says Zabritski. “With the resurgence of leasing and greater availability of late-model vehicles, monitoring shifts in consumer preferences will be essential as these trends are likely to influence the market in the near term.”

Here are other significant points from the Experian report: