Key Takeaways
Despite enormous federal spending, subsidies, incentives, and regulations to drive internal combustion engines out of the market, electric vehicles make up just 1 percent of vehicles in operation in the United States.
Increasing consumer knowledge about electric vehicles, high up-front costs and high interest rates have slowed the rollout of new models and forced automakers to reassess their EV transition plans.
Possibly slowing EV sales growth further, eligibility for the EV tax credit will be reduced next year due to restrictions to limit EV parts imported from China.
The average list price of electric vehicles has fallen to $63,000, while the average list price of internal combustion vehicles (gas and diesel) remains at $48,000.
Gasoline powered vehicles continue to grow in volume as electric vehicles have not done much to change the vehicle profile in the United States. Electric vehicles now total 3 million vehicles in operation (1 percent share), while hybrids have increased to 8 million (2.8 percent share). But those numbers barely dent the 288.5 million vehicles in operation (VIO) in the United States with gasoline/flex vehicles at 265.7 million in quarter 3 of 2023—up from 264.5 million in quarter 3 of 2022—and a 92.1 percent share. Diesel models in operation were at 9.9 million (3.4 percent share). New registrations are slowly increasing to 14.9 million annually as dealer supplies continue to increase.
Tesla still dominates the EV market in the United States, though its market share of new registrations has decreased significantly as more competitive options come to market. Tesla’s share of the EV market has eroded from 79.4 percent in 2020 to 57.4 percent in 2023. Chevrolet and Ford have the next highest EV shares in 2023 at 5.9 percent and 5.5 percent, respectively. Tesla Model Y has temporarily jumped to the #2 spot of new registrations in 2023, behind Ford’s F-150.
GM leads in overall VIO share, Ford Motor Company is currently ranked 2nd and Toyota Motor Sales is 3rd within the VIO category.
The Situation Could Get Worse for Electric Vehicles (EVs)
The situation could get worse for electric vehicles in 2024 as fewer models will qualify for the up to $7,500 EV tax credit due to new rules based on the Inflation Reduction Act. Qualifying for the subsidy will become more difficult on January 1 because of the new rules to encourage automakers to manufacture vehicles and parts in North America, attempting to bypass China. That feat will be difficult for most automakers, as they are still years away from breaking their dependence on China for batteries and essential materials like refined lithium. The harder-to-get tax credit will hurt EV sales, which are already growing less briskly than a year ago because of high interest rates, drivers’ anxiety about finding charging stations, and range issues. In addition, consumers are learning more about electric vehicles including shortcomings such as higher insurance costs and significantly reduced reliability compared to gasoline vehicles. Ford, General Motors and Tesla have slowed investment as the pace of growth has cooled.
To collect the full credit, carmakers must manufacture cars in North America and meet quotas on how much of their battery components and certain raw materials come from the United States or trade allies. Tesla, General Motors, Ford, Volkswagen, Rivian and Nissan are the only companies offering electric cars that qualify for at least a partial credit. Some plug-in hybrid cars from Audi, BMW, Chrysler, Jeep and Lincoln also qualify for tax breaks. New rules starting on January 1 disqualify vehicles containing components made in China or made elsewhere by a firm under the control of the Chinese government. China controls the world lithium ion battery supply chain, so this is increasingly hard to do.
Tesla, which accounts for half of all the electric vehicles sold in the United States indicated that its least expensive Model 3 sedan and a long-range version will no longer qualify after December 31, 2023, because the cars have a battery made in China. The existing credits lowered the price of the base Model 3 to around $30,000, on a par with similarly equipped gasoline cars like the Toyota Camry or Honda Accord. The stricter rules will also disqualify Ford’s Mustang Mach-E, which has been eligible for half the credit and was the fourth-most-popular U.S. electric vehicle this year. Ford is still figuring out whether the F-150 Lightning, its electric pickup, will be eligible. General Motors is assessing whether the Chevrolet Bolt and an electric version of the Silverado pickup will qualify. The Korean automaker Kia expects to begin producing the EV9, a seven-passenger electric sport utility vehicle, at a factory in Georgia next year, which should be eligible for half the credit, or $3,750.
Some hybrids, which have internal combustion engines and electric motors, will also qualify if they meet the sourcing requirements and have a battery with a capacity of at least seven kilowatt-hours. The Chrysler Pacifica Hybrid will most likely still be eligible for a $7,500 credit, while buyers of the Jeep Grand Cherokee 4xe and Jeep Wrangler 4xe hybrids are expected to be eligible for up to $3,750.
Due to Treasury Department rules, dealers can apply the EV subsidy to leased vehicles and pass it on to customers. The loophole has helped Hyundai and other foreign automakers remain competitive even though they do not produce electric vehicles and batteries in the United States. More than 40 percent of Hyundai’s electric vehicle sales are leases, up from just 5 percent before new restrictions took effect this year. The same provision in the law has allowed people who lease cars made abroad by Mercedes-Benz, BMW, Volvo and Polestar to receive the credit indirectly.
For the first time next year, dealers will be able to give buyers the credit when they purchase a car, rather than waiting to claim it on their tax returns, reducing the price accordingly.
EV Prices
The prices of electric vehicles are coming down due to increased EV production and Federal subsidies and loans for battery factories and electric car plants. The average list price of an electric vehicle fell to $63,000 in November from $68,000 a year earlier, while the average list price of a vehicle with an internal combustion engine was $48,000, the same as in the previous year.
Conclusion
Gasoline cars and trucks are still in demand in the United States, as their prices are less than their EV counterparts, fill-ups are quick, and vehicle range is not an issue. The distribution of vehicles in operation in the United States is over 90 percent gasoline/flex, with just 1 percent electric. The average list price of an EV has come down to $63,000, but that is still more than the average list price of an internal combustion engine vehicle at $48,000. New rules based on the Inflation Reduction Act that begin on January 1, 2024, will make it harder to get the EV tax credit, which means that the rate of EV sales may slow more than they have already, as early adopters have received their electric vehicles.
