No, I am not trying to sell or lease you an electric vehicle (EV). And no, I do not have an affiliate relationship with anyone that has anything to do with buying or leasing a vehicle.
My sense of urgency stems from this research (summarized below) and the impending threat of tariffs.
The Inflation Reduction Act (IRA) was passed under the Biden Administration. The new administration does not support various aspects of the plan, and with a GOP-controlled Congress, it has the power to roll back what it doesn't like.
The IRA provides tax credits (up to $7,500) for purchasing eligible electric vehicles and extends similar benefits to leasing. Leasing companies can claim a $7,500 tax credit for leasing new plug-in EVs to individuals.
What is a tax credit? Think, straight up cash from the government.
As we approach the end of the year, many of you may be considering the switch to an electric vehicle (EV). The options to buy or lease an EV come with their own benefits and drawbacks, especially in the context of the Inflation Reduction Act (IRA) and the evolving landscape of EV incentives in the United States.
Full disclosure: we are currently an electric vehicle owner and are considering purchasing or leasing a different electric vehicle.
Tariffs
The income U.S. President made the following announcement on his Truth Social account:
The stock prices of American automative makers immediately plummeted. Tariffs are expensive for consumers, and would be particularly painful for American car buyers. Mexico and Canada account for roughly half of the production of auto parts for American cars.
What does this mean for car buyers?
Our vehicles will be more expensive. According to reporting by Fortune, if enacted, Wells Fargo analysts estimate a 25% tariff on all auto parts from Canada or Mexico will add $2,100 in cost to the consumer for each U.S. assembly vehicle.
Purchasing a vehicle in advance of the unpredictable automotive market under the new administration could save you thousands.
The Current EV Market
The electric vehicle market is booming, driven by significant policy support through the IRA, which has instilled robust tax credits to accelerate the adoption of EVs. This initiative is part of the most ambitious investment in combating the climate crisis in world history, designed to foster environmental benefits, secure domestic manufacturing, and ensure a resilient energy future.
Buying an EV: Pros and Cons
Pro: Ownership Benefits
When you buy an EV, it becomes your property, which means no restrictions on mileage or modifications.
Pro: Tax Credits
Buyers of new EVs can benefit from federal tax credits under the IRA, which can be as substantial as $7,500, depending on the model and its compliance with domestic content requirements.
Pro: Long-term Savings
Owning an EV can lead to substantial savings on fuel and maintenance over the vehicle’s lifespan.
Con: Higher Initial Cost
The upfront cost of purchasing an EV can be significantly higher than leasing, even after tax credits.
Con: Depreciation
EVs, like all new vehicles, can depreciate quickly. Once the tax credits are applied, the vehicle's market value may decrease faster than traditional cars.
Con: Technology Obsolescence
Given the rapid pace of advancements in EV technology, a purchased EV might become outdated more quickly, impacting its resale value.
Leasing an EV: Pros and Cons
Pro: Lower Monthly Payments
Leasing an EV generally requires lower monthly payments than buying one, making it more accessible for immediate use.
Pro: Flexibility
Leasing offers the flexibility to upgrade to newer models every few years, avoiding obsolescence.
Pro: Hassle-Free Maintenance
Most leases cover the vehicle during its prime years, reducing the likelihood of encountering maintenance issues.
Con: No Ownership
At the end of the lease, you do not own the vehicle and must either return it or buy it at a residual price.
Con: Mileage Restrictions
Leases typically have mileage caps, with penalties for exceeding them.
Con: Limited Tax Benefits
While leasing companies can benefit from tax credits (potentially passing these savings to the lessee), direct consumer tax credits for leased vehicles are less straightforward than those for purchased vehicles.
Resources to Weigh Your Options
Key Considerations for End-of-Year Decisions
As the end of the year approaches, considering a purchase or lease becomes crucial due to potential policy and tax incentive changes. The IRA's benefits might adjust, and the availability of specific models meeting the criteria for maximum tax credits could diminish as manufacturers adjust to supply chain requirements.
Evaluating the long-term benefits against the rapid pace of technological change in EVs is crucial for those leaning toward buying. For those considering a lease option, weigh the financial flexibility against the lack of ownership and potential excess mileage fees.
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