Godofredo A. Vásquez/AP Photo
Electric vehicles can be seen charging at a shopping center in Emeryville, California, August 10, 2022.
Today’s expected House passage of the Inflation Reduction Act sets a framework for increased electric-vehicle adoption across the United States. The bill includes a $7,500 tax credit for new EVs, subject to strict sourcing requirements that force industry to rapidly reshore battery production lines to the United States and its trading partners. Constructing that supply chain could take years, and the domestic-content provisions are being challenged by the European Union as a violation of trade agreements, a dispute that could take just as long to resolve.
However, the bill’s inclusion of a new $4,000 tax credit specifically for used EVs could play an outsized role in the short term.
The transition to widespread use of electric vehicles across the U.S. relies on their availability in the used-car market space. According to the Zero Emission Transportation Association’s Joe Britton, used cars account for 70 percent of the car market. Tracking closely with automobile sales from last year, 43.1 million vehicles sold in the United States were used, compared with 15.3 million new sales. Plus, the aging of the U.S. vehicle fleet, which is currently well above the usual level, suggests significant turnover and increased sales in the next few years.
Britton told the Prospect that because the $4,000 tax credit is not subject to the same critical mineral and battery component requirements as the $7,500 rebate, a far greater number of used cars will be eligible.
Technically speaking, this means that used-vehicle tax credits would apply to EVs assembled with critical minerals and battery components produced through China. However, as long as the vehicle is sold through an American seller, it’s eligible. If mass EV adoption and decarbonization of the automotive sector is the goal, that makes sense.
In theory, the way the tax credit would apply, according to EV analyst Loren McDonald, is that used-EV buyers “can choose to transfer the amount of the applicable tax credit to the car dealer who can then apply the rebate at the time of purchase amount as a discount off the purchase price or down payment.”
That will require a lot of understanding about how to apply point-of-sale federal rebates at thousands of used-car dealerships across the country. It also will require the maturation of the market for used electric vehicles, which is relatively new and untested, and might not yield the types of vehicles consumers actually want to buy.
The quality of used EVs matters when affordability is often the largest barrier. Currently, the average used car is around 12 years old. According to Kelley Blue Book, Americans’ cars are older because the price of a new car is increasingly out of reach. In April, the average new car sold for around $46,526, a $5,354 increase from the year before. However, the increased selection of lower-priced EVs has been positive for consumers. From March to April, consumers paid $1,275 less toward lower-end EVs.
But the market for EVs was much smaller 12 years ago. That means there simply aren’t a lot of used EVs on the market today. So dealers are likely to have a greater advantage in setting the appropriate price. There is no guarantee that a $4,000 tax credit for used EVs won’t translate into a $4,000 price rise for used EVs, nullifying the reason for the rebate’s creation.
Consumers need to see that they are going to be just as secure driving an EV as they are keeping or buying a gas-powered automobile.
This is exacerbated by the fact that used-car dealerships have no federal oversight. During the creation of the Consumer Financial Protection Bureau, then-Rep. John Campbell (R-CA), a former Saab dealer, successfully secured an amendment to the Dodd-Frank Act, exempting auto dealers from the CFPB’s purview. A carve-out originally shrouded as a protection from overregulation for small businesses is now at the center of a significant financial transaction for many Americans, as well as the signature emissions reduction program in the United States. Without a consumer protection window into what used-car dealerships are doing, consumers must rely on a patchwork of often inattentive state regulators.
Even without the possibility of a used-car scam, a consumer today looking for a used car would have to make a cost-benefit analysis between a gasoline-powered or electric vehicle. For example, a 2012 Chevy Impala with around 80,000 miles is going for around $8,000 to $14,000. For a 2012 EV, the cheapest prices start around $12,000, with Teslas in the $30,000 range.
While the $4,000 used-EV rebate would be an incentive for most car buyers, if we base the average used EV on the 12-year figure, that would mean consumers would be subjected to some of the least impressive EVs on the market. While Tesla debuted its first electric car in 2008 with a self-reported range of 245 miles, that car had a starting price of $98,000. It’s unlikely anybody who is relying on a $4,000 tax credit to purchase an EV is in the market for a 2008 Tesla.
Other than Teslas, the average battery range for a 2012 EV, for example, is about 56 to 123 miles per charge. While the environmental and cost benefits are greater in the long term, for comparison, a 2012 Chevy Impala has a gas range of 374 miles.
Lower-range EVs on the road put more pressure on state and federal officials to build the infrastructure to allow more people to comfortably own an EV.
Last December, the White House announced its Electric Vehicle Charging Action Plan, setting the ambitious goal of EVs accounting for half of all vehicle sale shares by 2030. Last year’s bipartisan infrastructure law aimed to create 500,000 chargers across the nation through $5 billion in funding for states, in addition to $2.5 billion for expanding charging options for underserved communities, such as rural areas. As the Prospect reported in 2019, Senate Majority Leader Chuck Schumer’s (D-NY) original proposal was for $45 billion for charging infrastructure construction.
Investment from the federal government is imperative, but at the most basic level, consumers need to see that they are going to be just as secure driving an EV as they are keeping or buying a gas-powered automobile. If the $4,000 tax credit kicked in today, consumers would have the option of 49,835 charging stations, translating to 125,067 charging ports. About 25,000 new charging ports have come online in the past few years.
Meanwhile, there are 127,588 consumer gas stations, according to the American Petroleum Institute. Yet McDonald says that drawing comparisons between gas stations and EV charging stations is not so simple. Ideally, drivers would charge their cars at home. And instead of the ultra-convenience of filling up at a gas station, if somebody needed to charge their car on the go, because of the varying charge time for EVs, mega-charging centers would have restaurants, services, and shopping available. McDonald says, “These mega charging/leisure centers will be fewer in number than gas stations, but located very strategically.”
Instead, the average consumer is looking at an EV that in some respects is a downgrade from what they currently drive because of the country’s lacking infrastructure. As the enthusiast magazine Car and Driver says, “Limited driving range, tiny dimensions, and long charge times are largely things of the past.” Indeed, the best new EVs today have driving ranges beyond 200 miles in addition to rapid charging times.
A road to mass EV adoption is possible, but without guaranteed consumer protections, an adequate nationwide charging infrastructure, and immediate improvements over gas-powered counterparts, such a transition demands a ton from consumers.
