One Big Reason Why Fewer People Buy Plug-in Cars This Time of Year

Do you have a spare $7,500 you don’t mind doing without for the next year and a quarter?

If you don’t you are certainly not alone, and the last five years of U.S. plug-in car sales have shown buyers who stand to claim a federal tax credit – and in cases state incentives – are not as inclined to buy this time of the year.

According to Michigan-based green car analyst Alan Baum, first-quarter sales from January through March are disproportionately lower for plug-in hybrid and battery electric cars than they are for conventional vehicles and regular hybrids.

Of course other reasons also can come into play, but the way the incentive situation is established has been understood to hurt plug-in car sales.

The opening $7,500 example is the maximum amount a plug-in car might be eligible for under the IRS tax code, and vehicles with batteries of 16 kilowatt-hours and larger are those whose buyers could fit the rhetorical scenario.

Last month the 2016 Chevy Volt broke a three-month streak from sales that had hovered in the 2000-monthly unit range with just 996 delivered in January. These fully redesigned and generally more-desirable cars are being sold in just 11 California rules states. Also hurting their sales is California’s green HOV access stickers are maxed at the moment, but beyond that buyers would have to wait longest to recoup fronted money.

leaf

Nissan’s aging but now up to 107-mile range Leaf sales were also down for other reasons, but the all-new Volt is a clearer indicator.

At MSRP, the Volt starts just shy of $35,000 and trims can push prices to over $40,000 all told. A buyer whose tax situation would allow a federal tax credit to be claimed who took delivery January 1 would have to wait until after Dec. 31 and realistically, a couple or few months into 2017 to collect said tax credit.

State programs vary for plug-in vehicles, and don’t pay as much, but delays for these incentives also may mean a longer wait on a case-by-case basis.

Meanwhile, the way the federal program is set up means people are not as incentivized to think about the incentive right about now.

Of course not everyone buys outright, and financed sales mean the expected credit amount is not always pure cash out of pocket, but buyers in either case do accept responsibility for a larger purchase, and that makes a difference.

If there was no effect at all, one might expect sales patterns since 2011 – when major manufacturer plug-in cars came to market – would see proportional sales throughout the year, but this is not the case.

In 2013, when the top-three best-selling plug-in cars – the Chevy Volt, Nissan Leaf and Tesla Model S – were relatively in a prime portion of their lifecycles, a trend can be seen.

Plug-in hybrids – which aside from the 16.5-kwh Volt were eligible for closer to $4,000 or less federally – saw sales of 16.8 percent of the whole year’s total during the first quarter – not 25 percent which would be an even one-quarter.

Percentage of the whole year's sales for Q1 and January.

Percentage of the whole year’s sales for Q1 and January.

Battery electric cars similarly saw 19.7 percent of the year’s sales total in the first quarter.

By contrast regular hybrids sold 24.7 percent, nearly proportional to the time span in question.

Notice also January sales – the sales furthest from tax time the following year. For that month, plug-in hybrids and battery electric car sales also were lower than hybrids.

There are 12 months in the year as you know, and one-twelfth equals 8.3 percent, but did the 31-day month of Januarty see 8.3 percent of the sales? Nope.

Both plug-in hybrid and battery electric sales in January 2013 saw just 4.8 percent of the year’s total sales, whereas hybrids were 7 percent, closer to an even proportion to the time span in question.

The chart shows variances, and there have been better and worse examples, but typically Q1 is weak for plug-in sales and has been since these cars have been on the market.

On the flip side, sales toward the end of the year see a spike, and December sales can go out with a bang.

Baum notes that naturally there are other reasons besides tax credits for January-March sales being relatively tepid.

Other reasons include, but are not limited to: 1) most plug-in electrified vehicles are not all-wheel-drive, a factor for snow-belters, 2) cold weather is associated with less range to some buyers’ minds, 3) cold and inclement weather can stop sales period.

A major blizzard hit the Northeast last month, and generally, consumers are fickle. Fair weather seasons can mean a more inviting time to get out and buy, and people do make long-term decisions based on short term realities.

For example minivan sales may also go up in anticipation of summer vacation season. Or, famously, if gas prices go up, people buy more-efficient cars. Conversely, if gas prices trend down, SUV and truck sales go up.

Tesla Model S

Tesla sold an estimated 3,500 Model S units December 2015, and just 1,300 in January 2016.

Regardless of the weather however, the tax credit situation is a reality baked into the law. Other government incentive programs, such as in the UK and elsewhere, have emphasized a point-of-sale rebate, or generally quicker payback. This has been suggested for the U.S., even by President Obama, but the compromised state of affairs is what it is.

The federal law does not allow for instant remuneration, so while being praised for offering the comparatively generous subsidy for cars that generally cost more, it has been seen as favoring well-off buyers.

Does The $7,500 Plug-In Car Tax Credit Need Reform?

More specifically, it is people who have sufficient discretionary funds who are more likely not to flinch over fronting money that they may not see back after a longer period of time.

On the other hand, if a buyer had to stretch to buy a $37,500 plug-in car and was expecting $7,500 on a federal tax return, that’s 20 percent of the price put up only to wait, and wait.

For this reason, the tax credit perk has been criticized for being less than equitable.

And while one could debate the merits of that assertion, it does appear the way it’s set up does affect buyer behavior.