A Brief Overview of buying an Electric Vehicle Now
- Electric vehicle models are in short supply.
- Auto loan interest rates may continue to climb.
- The average range of electric vehicles will likely increase during the next few years.
- You may be eligible for a tax credit of up to $7,500.
If you are on the verge of buying an electric vehicle (EV), you may be wondering if you should buy a new EV now or wait. We understand your reluctance. The weakening economy, soaring interest rates, new and complex laws on EV tax credits, and the high price of automobiles, in general, are just a few of the factors that may cause you to hesitate.
This article focuses on fully electric vehicles that derive all of their power from a battery that is recharged by plugging it into an external electric source. This excludes plug-in hybrids (PHEVs) and conventional hybrids (HEVs), both of which utilize gasoline-powered engines.
Let’s examine some of the difficulties we’ve discussed, present some pros and cons for buying now, and then explain what we would do in your position.
What is the cost of an electric car?
Currently, the average price of an electric vehicle in the United States is a little over $61,000. That is, indeed, luxury car territory. Obviously, this is average; thus, some EVs are priced lower and some are priced higher. However, there are just a few electric cars available for less than $40,000. Examples of vehicles below this threshold include the Chevrolet Bolt ($26,500), the Nissan Leaf ($28,040), the Hyundai Kona Electric ($33,500), and the Kia Niro EV ($39,550) (prior to destination charges). Consequently, manufacturers have priced electric vehicles out of the reach of the average consumer, as the majority cost far more.
Nissan, Chevrolet, and Tesla are among the EV manufacturers that have decreased their pricing. Tesla has reduced the price of its Model 3 and Model Y by $3,750 and $13,000, respectively. Under the new rules for the electric car tax credit, they are both now eligible for a maximum of $7,500 credit. In other words, Model Y can now cost up to $20,500 less than in December 2022.
Lack of Model Variety for Electric models
Despite the variety of new EV models that automakers continue to introduce, there are still nowhere near as many electric car models as there are gasoline-powered options. Moreover, if you are brand loyal, your options are much more limited. For instance, Honda, Dodge, Buick, and Infiniti do not currently offer an EV. Nevertheless, almost every car has announced plans to create EVs in the near future.
In other words, the alternatives will increase over time. Therefore, if you can’t find exactly what you want now, you may be able to do so in one or two years.
Limited Supply in the Automotive Industry
Mention a reason: Due to the microprocessor shortage, a clogged supply chain, assembly line troubles, or anything else that may cause delays, the delivery of more than a few EVs can take a year or longer after the original deposit. In certain instances, the supply cannot satisfy the demand. Therefore, consumers must wait months for the EV of their choice as orders pile up. Uncertain is if or when the supply will catch up with demand. Given the number of variables, it is nearly hard to make an accurate prediction. Although logic tells us that supply will eventually match demand at some point.
EV Tax Credits You Might Think About
If you are competent at reading all the rules in the Inflation Reduction Act (or “Build Back Better” plan) that Congress enacted at the end of last summer, you may be able to navigate the confusing new rules. The exceptions and timelines for the most recent EV tax-credit laws are still being worked out as of this writing. The implications of this new bill are too extensive to describe here. Many of the facts, as we understand them today, have been addressed elsewhere, and you can find them in the most recent edition of our article on tax credits.
However, your eligibility for the maximum $7,500 tax credit (2023) or tax rebate (2024) is determined by your income. For instance, the rebates are restricted to people with adjusted gross incomes of $150,000 or less, $225,000 for head-of-household taxpayers, and $300,000 for joint filers. It also depends on the price of the electric vehicle (less than $55,000 for cars and less than $80,000 for pickups and SUVs). Additionally, the EV must be assembled in the United States, Canada, or Mexico to qualify. Unless your lease.
Increasing Interest Rates on Auto Loans
As the Federal Reserve works to bring inflation under control, it is increasing the Federal Funds interest rate. This is the interest rate that banks charge each other for short-term loans, and it is determined by a committee of twelve Fed members. The Federal Reserve is the United States central bank. The federal funds rate is the primary determinant of the prime rate, which is the interest rate that banks charge their best borrowers.
According to Bankrate’s financial market specialists, the fed funds rate at the beginning of January 2023 was 4.5 percent. A year ago, it was 0.25 percent. Yes, that’s a 4.25 percent increase year over year. Therefore, the prime rate increased from 3.25 percent a year ago to 7.50 percent in early January. This causes pressure on all lenders to increase interest rates for all other car loan borrowers.
As a result of rising car prices and interest rates, the average monthly payment for a brand-new car will reach $777 by the end of 2022.
In the first half of 2023, Cox Automotive Economist Jonathan Smoke anticipates the Fed raising the Federal Fund Rates even more. The parent company of Kelley Blue Book is Cox.
Consequently, vehicle loan interest rates would increase further. At that moment, the increasing trend may end, which may provide some respite. However, Smoke anticipates that auto loan interest rates will continue excruciatingly high through 2023 and into 2024.
Is the Economy in Recession?
Historically, a recession has been defined as two consecutive quarters of negative gross domestic product (GDP). During the first two quarters of 2022, the U.S. economy undoubtedly met this benchmark. However, it recovered somewhat in the latter two quarters of 2022. The National Bureau of Economic Research has not yet made its “recession” determination. Why? Due to the fact that other economic indicators have remained quite robust. According to government statistics, the unemployment rate has stayed low, while consumer expenditure has remained high.
Sadly, some of the other economic indices have flaws. For instance, some prominent employers have announced layoffs. Microsoft (10,000 globally), Amazon (18,000 globally), Goldman Sachs (3,200), Meta (almost 11,000), etc.
Many analysts still expect the United States to enter a recession in 2023. Although the economy is faltering, it is too early to determine its severity. or how long things will persist.
Smoke summed characterized the current economy as follows: “The economy’s core challenges include 40-year highs in inflation and, as a result, 20-plus year highs in interest rates as the Fed attempts to slow the economy to bring its inflation objective of 2%.”
Pros and Cons of buying an Electric car Today
Interest rates – If there is a major decline in interest rates, it will not occur until much later in the year. In the interim, they may potentially increase. Unless you are ready to wait several months or a year, the current interest rates are likely to be the best we’ll see until sometime in 2024.
Retail prices – The average price of an electric vehicle (EV) today is much out of reach for the average consumer. However, if you are in the market for a Tesla, the current pricing are likely as good as they will get in the near future. In terms of pricing, if you have your heart set on an electric car, now may be as good a time as any to act.
Revitalized tax credit — For many, the optimal time to buy an electric vehicle was prior to the implementation of certain new tax-credit restrictions. However, it is now the year 2023. The good news is that the new rules make some electric cars once again eligible. For example, under the previous rules, GM and Tesla had exceeded the 200,000 EV sales quota. The new rules abolish this ceiling, making Tesla and GM electric car models once again eligible for a tax credit of up to $7,500 if purchasers fulfill the price and income limits.
Unstable economy – We are not economists and do not possess a crystal ball. In the next 18 to 24 months, we have no more idea of the economy than you do. Nonetheless, if we were to wager, we would wager that the economy will worsen before it improves. If we are playing the odds correctly, this means that demand for all new cars, including electric vehicles, will decrease, inventories will increase, and dealers will be willing to negotiate lower prices, even if the MSRPs of electric cars do not decrease.
Range — Although we didn’t mention it previously, according to a July 2022 poll by the AAA car club, range worry is still one of the most stated causes (mentioned by 58% of Americans). What does this have to do with your decision to buy now? Nothing, other than the substantial increase in the electric car range over the past decade. Although batteries remain an ineffective method for storing electric energy, their efficiency is improving over time. Therefore, it is possible that you will be able to buy an EV with a longer range in two years than you can today.
Timing — Regardless of the model you are contemplating, now is not the best time to purchase a new car, electric or otherwise. Prices and interest rates are high, and the supply of the majority of new models remains high. If you do not require a new car immediately, you may be better off waiting for a little.
Tax credits versus rebates – Although the new laws have removed the limitation of the sales, allowing many EVs that match the new price limits to qualify for up to a $7,500 tax credit, you may wish to wait a year before making a purchase. Why? Because on January 1, 2024, you can receive a cash rebate for this $7,500 credit. In other words, the dealer will use it to reduce the purchase price of the electric car of your choice if it qualifies under the new rules and your income level allows you to qualify. It will adhere to the same price limit rules as the current tax credit, but you will receive up to a $7,500 discount on the initial cost. You can finance a smaller amount, resulting in fewer monthly payments and lower total interest paid over the life of the loan.
Variety and supply – We are unable to forecast when the supply of electric vehicle models will increase dramatically. However, an increase to more typical levels is inevitable. When this occurs, dealers will be more amenable to negotiations. Similarly, 40 brand-new EVs are expected to be released as 2023 models at the time of writing. These will be produced by a variety of manufacturers, including Jeep, Nissan, and Subaru, along with Fisker, Toyota, Cadillac, and Mercedes-Benz. There is a good chance that you will be able to locate what you need by the end of 2023 or sometime in 2024.
What Are Our Options?
If budgeting were our top priority, we would wait a year. We believe the supply will increase, transaction prices will decrease, and we enjoy the idea of receiving up to $7,500 in government incentives upfront when purchasing a new vehicle. Even if meeting a budget wasn’t a concern, we like the larger variety of models the following year will bring. What the interest rates will do is a matter of chance. Due to the fact that many models take many months to a year to arrive following a down payment, you may not be able to prevent a mounting interest rate if it continues to rise.
Alternatively, if we were in a position where cost was not an issue and we could wait until we filed our taxes to take advantage of tax credits, we might purchase now. This is especially true if we were considering purchasing a Tesla Model Y or any other EV model now on the market.