Is Now the Best Time to Buy an Electric Vehicle?
With less demand and more inventory, dealerships face pressure to move EVs off their lots.
Tesla
QuickTakes:
Headlines lately have painted a picture of an electric-vehicle industry facing a surplus of vehicles for sale. If you've been in the market for an electric vehicle (EV), this might be a great time to pull the trigger. Burgeoning inventories and dropping prices combined with discounts typically are virtual green lights for EV shoppers who've been waiting to buy.
There are compelling reasons to buy in 2024. Many EVs are eligible for federal EV tax credits of up to $7,500. Starting in 2024, buyers can get their tax credits up front — at the time of purchase — rather than having to wait to do their taxes in the following year. Using that credit like a down payment could ease the sting of the generally higher prices that EVs continue to command.
Experts say it still pays to do your research and consider all options. First, decide if a new or used car better fits your needs and budget. While prices for both have dropped considerably, the New York Times reported in October 2023 that used EV prices have fallen by about 28% from a year ago.
Is now a good time to buy an EV? That depends.
EV Industry Offers Opportunities for New Buyers
Not too long ago — when vehicle inventories were low due to pandemic-related supply chain challenges — dealer incentives were rare. They were nearly unheard of for EVs. Times have changed.
According to Money magazine, the average discount on a new vehicle now exceeds $1,000 for the first time since April 2021. The average discount on battery-electric vehicles was about $2,600 in October 2023. That's an about-face from the buying situation 12 months earlier, when North American EV buyers were paying an average of more than $1,000 above the sticker price.
Dealerships Have More Incentive to Cut You a Deal
Dealers are more willing to offer discounts these days simply because there's more inventory. Gone is the time when eager EV buyers were willing to add their names to waiting lists for desired models. With lots of buzz about the EV market, many EV manufacturers rolled out new models and ramped up production in recent years — just in time to see demand cool off.
Since EV inventory spiked, it's taking longer to sell these cars than their gas-powered counterparts. Ed Kim, president and chief analyst of automotive research firm AutoPacific, says inventories in general have been growing since the end of the pandemic, with supply chain challenges that depressed inventories largely resolved.
A November 2023 report from Cox Automotive showed that new-vehicle inventory volume was 2.4 million at the start of that month, which is nearly 1 million more vehicles than a year earlier.
Vehicles in general are spending more time on dealer lots, too: 67 days on average, which is 41% higher than in November 2022. That alone could be a great opportunity for buyers to gain some leverage.
It's unclear how long these good times for buyers will last. Manufacturers that increased EV production, including General Motors and Ford, have begun to scale back. That could mean tighter inventory next year.
EV Prices Starting to Decrease
Cost has long been a major obstacle for prospective EV buyers who were either unwilling or unable to pay more for an electric vehicle than they'd pay for a gas-fueled vehicle. That EV premium has shrunk dramatically.
As of September 2023, EV prices had dropped more than 22% from a year earlier, closing the gap between EV and all vehicles to an average of less than $3,000, according to Kelley Blue Book. That's about a $15,000 drop in average EV transaction prices since September 2022.
Tesla slashed its prices multiple times in 2023. The brand has taken note of its market share drops as well as growing competition in the EV market. These price cuts were intended to drive demand.
Tesla's cuts sent ripples through the industry as other automakers scrambled to stay competitive.
Manufacturers are keying into consumers' price sensitivity and adjusting accordingly. Volvo made a splash in 2023 with the unveiling of its sub-$40,000 EX30 EV. Chevrolet changed its mind about discontinuing the popular and affordable Bolt EV and now plans to revive it.
Interest Rates, Lease Options, and New Tax Rebate Rules
One major challenge for buyers of any vehicle these days is that interest rates remain high. The Federal Reserve has indicated cuts could be coming this year, which may eventually affect auto loan rates as well.
Consumer Reports says its main advice for buyers in the current market is to act quickly and stay informed when negotiating. If your credit is good, that's also a big advantage in securing the best interest rate.
The federal government offers a $7,500 credit for battery-electric and plug-in hybrid models, including cars, pickup trucks, SUVs, and vans. It's important to keep in mind that a stricter version of the Inflation Reduction Act is now in play. Not only must the vehicle qualify against stricter standards, a prospective buyer's income must be below certain caps in order to qualify.
An EV lease loophole, however, could make leasing more attractive. Under the Inflation Reduction Act, leased electric vehicles are classified as commercial vehicles, so many more EVs regardless of country of origin, battery composition, or lessee income, qualify for the full clean-vehicle credit.
The way the law works, however, gives automakers the option of passing that rebate on to buyers; they are not required to. Doing your homework to compare costs on whether to lease or buy and having some flexibility to narrow your choices to a few options will open up the range.
Whether you're buying or leasing, research analyst Kim said, "Being smart about it and doing your research is the best way to get a good deal."
