Electric Vehicle Sales Are Increasing While Tax Credits Are Running Out
As gas prices increase, so do sales of hybrid and electric vehicles, but automakers are running out of tax credits.
Written by Julian de Sevilla
Reviewed by Kathleen Flear
Hybrid and electric vehicles continue to break sales records, while more automakers are running out of tax credits to offer buyers.
As gas prices increase, so do sales of electric vehicles. Though hybrid and electric vehicles currently make up a small portion of the car market, patterns of growth are projected to continue—the global electric vehicle (not hybrid) market is expected to include 39,208 units by 2030.
However, automakers are quickly running out of the tax credits they’re allowed to offer those who buy new plug-in hybrid or electric vehicles. Tax credits are a significant incentive to purchase, and while their running out isn’t likely to stop sales growth, it could slow it down.
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Companies are breaking April sales records
Hyundai Motor America sold 61,668 cars in April, making it the company’s second-best April in history. Their fairly robust hybrid and electric vehicle offerings largely contributed: the company’s electrified vehicle sales—comprising hybrids, plug-in hybrids, electric vehicles, and hydrogen fuel cell vehicles—increased 68% over last year.
The IONIQ 5, Hyundai’s newest electric SUV, won awards for Car of the Year, World Electric Vehicle of the Year, and World Car Design of the Year.
Meanwhile, Kia sold its 10 millionth vehicle in the United States and marked record EV sales in April.
Toyota has sold 183,000 hybrid and electric vehicles as of the end of 2021 and reported sales of 8,421 in the first quarter of 2022. Hybrid vehicles now make up a quarter of the company’s total sales volume.
In total, 657,000 hybrid or electric cars were sold in 2021—twice as many as in 2020. This growth is all but certain to continue as gas prices skyrocket and concerns about fossil fuel consumption and the environment become harder to ignore. But electric and hybrid vehicles are still a tiny portion of the market—they made up just 4.4% of total new car sales in 2021.
But tax credits are running out
Toyota’s hybrid and electric vehicle sales are likely to slow down once they surpass 200,000 units, since that’s the number of electric vehicle tax credits each company is allowed to offer buyers.
These tax credits of up to $7,500 are available to those who purchase new plug-in hybrid or electric vehicles that meet certain criteria related to their dimensions, battery, and intended use.
Here’s a list
of vehicles currently eligible for tax credits. It’s important to distinguish between tax credits, which reduce the amount of income tax you owe, and tax deductions, which reduce your amount of taxable income. General Motors and Tesla have already used their allotted tax credits. Nissan and Ford are also close to running out.
The Biden administration recently proposed changes to how these tax credits work, like offering additional tax credits of $4,500 only to unionized automakers and eliminating the 200,000-unit limit entirely. Predictably, General Motors and Ford favor the pro-union legislation while Toyota and Tesla, many of whose vehicles aren’t union-made, oppose it.
It’s fair to assume that these tax credits are part of the reason for explosive growth in EV and hybrid sales, so companies whose credits are running out are preparing for a reduction in sales growth.
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