Edmunds Analysis Says Tax Credit Cuts Put Mainstream Electric Vehicle Market in Jeopardy

New research finds financial incentives don't encourage mass adoption of EV technology but are vital to sustaining sales

SANTA MONICA, CA — April 7, 2017— As companies such as Tesla and General Motors launch new electric vehicles (EVs) designed to attract the masses, a new report from Edmunds shows that without generous tax incentives, it will be challenging for either company to meet sales goals for these vehicles.

"With gas prices at a relative low and the popularity of SUVs and trucks hitting all-time highs, the EV market is at a crossroads," said Jessica Caldwell, executive director of industry analysis for Edmunds. "While the high-end EV market most likely has the ability to hold steady, our analysis shows that the average car shopper still needs a significant financial incentive to choose an electric vehicle over a traditional counterpart."

To get a deep understanding of how financial incentives for EVs affect the market, Edmunds experts conducted an extensive analysis of what happened in Georgia following the expiration of their EV tax credit as a model for what could happen should policy shift at the federal level. Edmunds learned that:

  • Georgia's tax credit created a market for mainstream EVs that didn't naturally exist: Though sales of all EVs spiked while the tax credit was in effect, sales of the Nissan Leaf dropped off sharply once the tax credit expired. Sales of the Tesla Model S also dipped once the tax credit expired, but then quickly rebounded to the same level they were at when the credits were in effect.
  • Georgia's tax credit mainly incentivized wealthy car buyers. In 2015, the last year the tax credit was in effect, 41 percent of all EV buyers in Georgia made over $150,000 a year (38 percent if you eliminate Tesla buyers). Only 16 percent of all car buyers in Georgia in 2015 made more than $150,000.
  • Once tax credits are eliminated, lease payments on EVs jump sharply. The lease market for EV vehicles is heavily dependent on tax credits because residual values of EVs tend to be much lower than their traditional vehicle counterparts. In the case of the Leaf in Georgia, the average monthly lease payment was $132 while the credit was in effect, but shot up to $290 once it was eliminated.
  • Green shoppers are more deal-hungry than traditional shoppers. Traffic to Edmunds manufacturer incentives and rebates pages was 120 percent higher among those shopping for EVs, plug-in hybrid vehicles (PHEVs) and hybrids than those shopping for their non-green counterparts.

While sales of PHEVs and EVs have grown over the last five years — 136,295 in 2016 compared to 17,425 in 2011 — they still only constituted 1 percent of the market at the end of the first quarter of this year.

"It will take a significant rise in gas prices or stricter government mandates to drive sales of EVs at high volume," Caldwell says. "People want a car that makes their lives easier, and given the infrastructure challenges and battery limitations, right now EVs don't do that. The majority of consumers are still looking for the best price on a vehicle that meets their needs, and until EVs can be used as seamlessly as their traditional engine counterparts, mass adoption will continue to be a challenge without some kind of financial incentive."

To read the full analysis, visit the Edmunds Industry Center.

About Edmunds
Edmunds is the leading car information and shopping platform, helping millions of visitors each month find their perfect car. With products like Edmunds Your Price, Your Lease and Used+, shoppers can buy smarter with instant, upfront prices for cars and trucks currently for sale at more than 13,000 dealer franchises across the U.S. Edmunds' in-house team of unbiased car shopping experts provide industry-leading vehicle reviews and shopping tips, as well as welcome all car-shopping questions at our Help Center, via email at help@edmunds.com and on Twitter and Facebook. Edmunds is based in Santa Monica, Calif. and has a satellite office in downtown Detroit, Mich.

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