- Overall, electric vehicle leasing is down, but the Cut Inflation Act could change that.
- Automakers could pass on EV trade credit to customers who lease their EVs.
- Automakers that shared credit with lessees are already seeing business grow.
car manufacturers using the loophole that tricks car buyers into leasing a Electric vehicles have seen rental business soar – and this could be a secret jackpot for the transition to electric.
Last summer’s Cut Inflation Act introduced rules allowing new and used electric vehicles to qualify for crucial tax credits. Nowadays, less than ten pure electric vehicles are qualified for the new de facto rebate on electric vehicles, and that should change with more rules from the IRS.
But for vehicles that do not meet sticker price stipulations, “Made in America” requirements, or other factors outlined in the law (and therefore, are not eligible for these credits), there are a third option.
An automaker or its in-house finance arm can tap into available commercial EV credit by leasing electric cars (which otherwise wouldn’t qualify) to customers. This credit, which was designed to encourage commercial fleets to go electric, goes to the company that owns the vehicle.
The credit is $7,500 for vehicles weighing less than 14,000 pounds and $40,000 for all other commercial electric vehicles.
A car manufacturer can choose to retain the credit it derives from owning the electric vehicles it leases. Or, he can pass this on to the customer in the form of a lower monthly lease payment. Automakers that pass it on have seen their business increase.
It is all the more interesting that downward trend in car leasing, with EV leasing no exception. Only 12.6% of new electric vehicles were leased in 2022compared to 26.5% in 2021, according to Experian.
Which automakers share credit with customers?
Startup Lucid, along with at least 10 “mainstream” automakers, are leveraging trade credit, according to data from JD Power.
Mercedes-Benz, Volkswagen, Chrysler, Jeep, Genesis and Volvo do this through lease bonuses. Audi, Mitsubishi, Lexus and Toyota have other types of bonuses.
It should be noted that the JD Power-shared brands that use trade credit are largely non-domestic and would likely have a harder time qualifying for the new EV purchase credit stipulations than local auto brands.
Automakers that have passed on the amount to some degree have seen EV rental penetration jump from 25% at the start of this year to 52% at the start of February.
“Even back then, 45% would have been remarkable rental penetration,” Tyson Jominy, JD Power’s vice president of data and analytics, told Insider last month.
On the other hand, automakers that don’t pass on credit have seen relatively steady EV rental penetration hovering around 8% to 10% in recent months.
Leasing could be just what the EV industry needs
As the auto industry races to accelerate the adoption of electric vehicles it pours $1.2 trillion into the transition in the next few years, leasing could become a key element for both consumers and automakers.
Consumers may want to lease electric vehicles as a way to try technology without committing to an expensive purchase as battery technology continues to improve and depreciation is uncertain.
Meanwhile, automakers are interested in leasing electric vehicles in part because of commercial and used tax credits for electric vehicles. Being able to pass on commercial EV credit could attract customers who might not have otherwise considered electric. Recovering these vehicles after they have been leased – and putting them on the used market – opens up the possibility of attracting more customers via used EV credit.