Anyone who has heard or read about electric vehicles knows that they are much more expensive than the average internal combustion engine (ICE) vehicle. According to an April report from analysis firm Recurrent, the price of electric vehicles has grown by more than 20% since last year. Recently, automakers such as Tesla and GM increased the cost of their electric models amid supply chain constraints and increased production costs.
To help offset the cost of EVs and increase adoption, the government provides thousands of dollars in tax credits to people who purchase EVs. However, researchers from George Washington University say that tax credits are the least popular form of financial incentives among prospective car buyers. Their research found that such time-delayed incentives, meaning car buyers don’t receive them at the point of purchase, tend to be in favor of wealthier buyers.
This is because buyers without budget limitations can afford to buy an EV outright and then wait until they receive their tax credit. On the other hand, prospective buyers with lower incomes prefer immediate incentives that allow them to reduce their financial commitment at the point of purchase.
John Helveston, study coauthor and an assistant professor of engineering management and systems engineering at General Motors, calls the current federal EV tax credit a pain. He says that for EV tax credits to work, buyers ought to have the resources to purchase the EV outright and wait until April when the tax break kicks in. But for buyers who can’t afford to buy an expensive EV whole, this isn’t a feasible option.
Helveston says incentives that are offered at the point of sale would be more equitable and more effective at increasing electric vehicle adoption. Furthermore, such incentives would save the government money. Currently, people who purchase EVs are entitled to up to $7,500 in tax credits. After running a national survey of general public car buyers, the researchers found that people valued immediacy so much that the federal government could lower the incentive by $1,500 if it was offered at the point of purchase rather than as a tax credit.
The research team estimates that the federal government could have saved a whopping $2 billion from 2011 to 2019 if it had offered an immediate subsidy instead of a tax credit. The reduced subsidy would still be as effective as the tax credit, perhaps more effective because more prospective buyers who wouldn’t have been able to afford an EV purchase would now be able to buy an EV without straining their budgets.
If governments implement incentives that the population finds attractive, the market for the electric vehicles made by all sector players, including companies such as Kandi Technologies Group Inc. (NASDAQ: KNDI), would grow exponentially over the coming years.
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