Thinking about purchasing an electric vehicle?
New Programs, New Rules and New Facts to Ponder
by Heather Gerber, SRL Board Member
You would also be part of a growing movement. Last year, 11.91% of original vehicle registrations in Colorado were EVs, and in the 3rd quarter, that percentage was 13.28%, according to EValuateCO, a new dashboard set up to monitor the adoption of electric vehicles in Colorado. Globally, the numbers are even more impressive: a full 18% of new vehicle sales were EVs in August 2023, with 13% being battery electric vehicles rather than plug-in hybrids. These are amazing numbers. As a matter of fact, according to the World Resource Institute State of Climate Action 2023 report, we’re on track to hit our 2030 target for new EV adoption among light duty vehicles.
What you may not be so familiar with are the economic arguments for purchasing an EV. According to Consumer Reports, an electric vehicle will save you between $6,000 and $10,000 over the life of the vehicle compared with similar fossil gas-powered vehicles.
Where do these savings come from? Much of it is due to the fact that electric vehicles don’t need gasoline. Consumer Reports calculates that EV owners spend 60% less to fuel their cars every year than do owners of equivalent fossil gas vehicles.
This isn’t surprising due to the fact that EVs are just better at turning energy into motion. The National Renewable Energy Laboratory recently published a report in which they calculated something they called the electric vehicle efficiency ratio, which was essentially how far a given amount of energy would take an EV divided by the distance that amount of energy would take a fossil gas car. They found that the average electric vehicle in the U.S. can travel 4.4 times further on a given amount of energy than a gas powered car can. In city driving where an EV’s regenerative braking systems are more frequently engaged this ratio jumps to 5.1 while highway driving pushes the ratio down to 3.6.
But, fueling costs are not the only source of savings for EV owners. EVs also cost less to keep running. In fact, Consumer Reports found that EVs typically cost half as much to maintain as do equivalent gas vehicles. Without all of the moving parts of an internal combustion engine, EVs don’t need oil or transmission fluid changes, let alone spark plug or timing belt replacements.
Plus, there are financial incentives at both the state and federal level to make the switch to an electric vehicle.
At the federal level, the Inflation Reduction Act renewed and modified the Clean Vehicle tax credits that had been in effect before 2023. The new incentive offers up to $7,500 tax credit for the purchase of new, clean vehicles, and 30% of the purchase price of a used clean vehicle, up to $4,000.
It’s important to note that both of these credits have income and vehicle qualifications attached to them. To qualify for the new vehicle tax credit, you need an adjusted gross income of $300,000 or less for married couples filing jointly, $225,000 or less for heads of household, and $150,000 or less for all other filers. To qualify for the used vehicle tax credit, you need an adjusted gross income of $150,000 or less for married filing jointly or surviving spouse, $112,500 or less for heads of household or $75,000 or less for all other filers.
Once you’ve established your qualification for the tax credit, you need to be sure that the vehicle you want to purchase qualifies, too.
For used vehicles, this is more straightforward. There are restrictions on the gross vehicle weight and the minimum battery capacity, but there are three restrictions that people should know right off the bat. To qualify, the used vehicle must be at least two years old, it must be purchased from a qualifying dealership, and it has to have a sale price of $25,000 or less (including all dealership fees). Details about income qualifications, vehicle qualifications and how to claim the Used Clean Vehicle Credit can be found at this IRS’ webpage.
Understanding which vehicles qualify for the New Clean Vehicle Credit is more complicated. Starting on April 18, 2023, new rules regarding the origin of both the critical minerals and the components of vehicle batteries came into play. These were added to the other requirements that had already been in effect. Now, to get the full $7,500 credit, the vehicle you purchase must undergo final assembly in the U.S., meet both the battery component and the mineral criteria, and have an MSRP at or below the cap for the category of vehicle. Vehicles that meet the original 2023 requirements and only a portion of the new requirements (in other words, either the battery component or the critical mineral requirement, but not both), can be eligible for half of the tax credit. Details on the New Clean Vehicle Credit can be found at this IRS webpage.
The good news is that the government is trying to make it easier for consumers to navigate the process of finding a qualified new vehicle and taking advantage of the tax credit. On Fueleconomy.gov, there’s a search tool that will tell you which electric vehicles qualify for some or all of the credit and how much of a credit they qualify for.
In addition, you can now use your tax credit to reduce the cost of an EV at the time of purchase, if you choose. To do this, you first need to verify that the dealership you have in mind has registered for this program with the IRS. When you are making your purchase, the dealership will provide you with a time of sale report that details the tax credit eligibility of the vehicle you’re buying. You can decide to transfer the tax credit you’re eligible for to the dealership as a down payment or a partial payment for the car. Details can be found in this IRS document.
Since July of 2023, the state of Colorado has begun offering tax credits for the purchase or lease of new EVs. For vehicles with a manufacturer’s suggested retail price (MSRP) up to $80,000, taxpayers can get a $5,000 tax credit. And, for EVs with an MSRP of $35,000 or less, Coloradans can get an additional $2,500 tax credit, meaning they are eligible for a $7,500 state tax credit.
Even with these tax credits, electric vehicles can still be out of reach for many Coloradans. Recognizing that this is an equity issue, the state developed a program called Vehicle Exchange Colorado aimed at helping lower income Coloradans replace old or polluting vehicles with EVs.
To participate, you have to meet the income requirements for the program, 80% of Median Area Income for your area, and the vehicle to be replaced has to be at least 12 years old or has to have failed a Colorado emissions test. There are also additional requirements that the replaced vehicle must meet to qualify.
Where both vehicle and owner meet the program qualifications, the state offers $6,000 rebates toward the purchase or lease of new electric vehicles and $4,000 rebates toward the purchase or lease of a used EV. And, these rebates can be combined with other incentives, including utility rebates and state and federal tax credits.
Interested in electric vehicles but wary of taking the plunge? Many people who might consider an EV hesitate because EVs are still unfamiliar, new. The Colorado Energy Office, in partnership with the Colorado Department of Transportation, has launched a program called EVCO to help assuage Coloradans’ worries about making the shift to an EV. In addition to offering articles on EV ownership, the EVCO website has tools to help Coloradans find EVs, understand both Colorado and federal tax incentives, and learn about the growing network of charging stations available in our state. If you need even more help, EVCO offers ReCharge Coaches who are there to “help consumers, local governments, workplaces and multiunit housing developments identify monetary savings, grant opportunities and other advantages related to deploying EVs and charging infrastructure.”
Though electric vehicles have just begun to permeate the American vehicle landscape, they are the future for transportation in a liveable climate. In its World Energy Outlook 2023, the International Energy Agency (IEA) predicts that EVs will make up 30% of global vehicle sales by 2030 just based on current policies in place. But, current global policies don’t fully represent pathways to fulfill our pledges to keep warming to no more than 1.5 degrees Celsius. To make good on those pledges, 27% of transportation needs to be electrified by 2050. If we want to aim for a net zero emissions target instead, 51% of all transport needs to be electrified by 2050. As amazing as our EV adoption rates in Colorado were last year, all of the electric vehicles sold in Colorado so far only bring the share of EVs to 1.36% of total light duty vehicles. We have a long way to go.
So, are you thinking about buying an electric vehicle?