I think it's fair to say that the Inflation Reduction Act—the Biden Administration's omnibus spending bill aimed at clean energy, infrastructure, health care reform and much more—has had its share of headaches when it comes to driving electric vehicle sales.
Few people understand the tax incentive scheme for EVs and plug-in hybrids, chargers and battery factories take years to build out, and the roster of eligible cars changed so much in 2024 alone that updating the list kept us pretty busy here at InsideEVs.
But when it comes to reducing EV buying costs, guess what? It's working.
That kicks off this Monday edition of Critical Materials, our morning roundup of what's new in the world of tech, transportation and our pivot to an electrified future. Also on deck: car companies faced financial headwinds in Q2 of 2024 for different reasons, and the Honda Prologue faces a recall you may want to know about.
30%: Yes, The IRA Is Working On The EV Front
One mark against EV adoption is that, so far, the cars have just been more expensive than their gas-powered counterparts. There are many reasons for that, but it generally comes down to the still-high cost of batteries and the fact that EVs depend on supply chains that aren't nearly as built out as the ones powering gas cars for the past century.
But the IRA is moving the needle in the right direction, according to an Automotive News report from earlier in July that I missed but is worth highlighting here. And as many automakers (but certainly not all) see record EV sales, they have both EV tax credits and leasing loopholes to thank for pushing wider adoption:
[The IRA] has spurred investment plans amounting to billions of dollars in domestic EV assembly plants, battery factories and materials mines.
As it turns out, limits on buyer income and EV sourcing requirements have not raised what consumers, on average, are paying for the vehicles.
Compared with the first quarter of 2022—prior to the legislation—average transaction prices fell $8,600 to $57,584 for purchases in the same period of this year, according to data from J.D. Power. The average transaction price includes legacy automotive brands and Tesla. The average lease transaction price slid $5,900 to $33,553.
There are other reasons, too, like Tesla sparking a price cut war last year that spread nearly across the board. But the leasing loophole in particular—which nets a $7,500 discount via a tax credit at the point of sale—is really pushing things:
On EV leases, one feature of the legislation allowed the tax credit to pass through without sourcing and assembly requirements. The Commercial Clean Vehicle Credit allows lessors — automaker finance arms and other lenders — to pass along the $7,500 credit in a lease, which is considered a commercial transaction. The result is that more consumers can tap the tax credit when leasing, saving them about $1,900 in the transaction price.
EV lease penetration for non-Tesla models typically hovers above 60 percent and stretches to about 90 percent for some Audi and BMW models.
"It is the loophole. You don't have to worry about your income bracket, the MSRP, where the battery minerals were produced," said Stephanie Valdez Streaty, director of industry insights at Cox Automotive. "I think it will continue."
The problem is that car companies are getting nervous both because they (and their dealers) are taking losses to drive sales. And the IRA incentives are very much up in the air depending on the election results; former President Donald Trump has vowed to end them if re-elected, even as they drive huge investments even in red states like Hyundai's $7.6 billion EV and battery complex in Georgia.
So what happens if all of that goes away? That will be the $200 billion question voters will have to ask themselves as they go to the polls;. However, it's unclear what a potential Harris Administration would do differently here than the Biden Administration; we can all presume the policies won't be that dissimilar.
60%: A 'Choppy' Present For An EV Future
Let's be real: Q2 wasn't a great one for the automotive industry. Sure, loss related to EV production is part of that, but the biggest problem has been high interest rates. Those have thwarted sales of things like big trucks and SUVs that carmakers really depend on for profits.
There are also automaker-specific problems, like Tesla's aging lineup (and other matters) slowing down sales, Ford's sky-high warranty costs amid a long-running quality crisis, or Stellantis' sinking Jeep sales... it's a lot right now.
However, the Wall Street Journal points out something I strongly agree with: people are just sick of the crazy new car prices, which jumped heavily during and after the pandemic. New cars that cost $50,000 on average are fine when interest rates are nearly zero, but not when they hover around 8%:
One particular concern among auto investors has grown louder: The strong pricing power that carmakers have enjoyed in the pandemic era is slowly fading. Several auto executives warned that in the second half of the year, they expect the average price paid by customers will edge lower.
“The results of our competitors are not demonstrating that price pressure is going to vanish,” said Carlos Tavares, chief executive of Stellantis, which also makes Ram vehicles.
Car companies for years have made the case that they are ready to become technology companies, with plans to transform cars into battery-powered smartphones on wheels. Those ambitions, coupled with an unprecedented run of profitability fueled by stout pricing, lifted stocks.
Wall Street’s enthusiasm for that vision has faded, as U.S. electric-vehicle demand hasn’t taken off as expected. Now, with signs that pricing is losing steam as the American car buyer grapples with high interest rates, investors are looking for reasons to stick around.
“The overarching feeling for the auto industry is that the good times can’t last,” said Martin French, managing director at auto consulting firm Berylls Strategy Advisors.
That's funny because I wouldn't exactly call the pandemic supply chain shenanigans of the early 2020s "good times." However, automakers are trying to sell Wall Street in the future, not in the present: EVs, autonomy, their approach to technology, and more.
“The remaking of Ford is not without growing pains," Ford CEO Jim Farley said during his Q2 call last week. The same could be said of all of them.
90%: Honda Prologue Recalled
It's only 39 units (for now), but if you bought a Honda Prologue recently, be advised your new GM-made EV is facing a recall. Here's the NHTSA to fill you in:
Honda (American Honda Motor Co.) is recalling certain 2024 Prologue vehicles. The right front lower control arm may contain a manufacturing defect that can cause it to fracture.
Dealers will inspect and replace the right front lower control arm as necessary, free of charge. Owner notification letters are expected to be mailed September 2, 2024. Owners may contact Honda customer service at 1-888-234-2138. Honda's number for this recall is PIY.
100%: Which 'Legacy' Automaker's Bets Will Pay Off In The Future?
After driving the affordable Chevy Equinox EV, I'm feeling pretty good about GM's Ultium play—it's giving that company the scale it needs to build EVs across many brands at many price points for years to come. GM has also upped its software game considerably this year.
Who else is doing the hard work right now that will pay off tomorrow and beyond?
Contact the author: patrick.george@insideevs.com
