If you purchase a new all-electric, plug-in hybrid, or fuel cell electric vehicle in 2023 or later, you may be able to claim a federal income tax credit of up to $7,500. However, eligibility for the credit depends on several factors, such as the vehicle's manufacturer suggested retail price (MSRP), where it was assembled, and how its battery components and critical minerals were sourced. Additionally, the credit amount may be subject to reduction based on your modified adjusted gross income (AGI).
Pre-owned vehicles purchased in 2023 or after are eligible for a tax credit of up to $4,000.
Changes to this list are ongoing, some qualified manufacturers have yet to submit information on eligible vehicles that meet the requirements for vehicles placed in service on or after April 18, 2023. Please check back for updated information.
Federal Tax Credits for Plug-In Electric Vehicles Purchased in 2023 or after
(Vehicle placed into service on or after April 18, 2023)
Last updated 4/23/2023
It's a start, but there's a long way to go yet...
As the automotive industry continues to recover from the pandemic and other supply chain disruptions, some trends are becoming clearer. One of them is the decline of internal combustion engine (ICE) vehicle sales, as more and more consumers opt for electric, plug-in hybrid, and fuel cell vehicles.
This shift is driven by a combination of factors, including environmental concerns, regulatory pressures, technological advancements, and changing consumer preferences. A report from Bloomberg New Energy Finance says, "it’s becoming clearer that sales of internal combustion vehicles are unlikely to ever return to pre-pandemic levels.
During the height of the market in 2017, a total of 86 million ICE vehicles were sold, which includes hybrids such as the Toyota Prius as they are only gasoline-powered. At the time, electric and plug-in hybrid models made up only a small fraction of the market, with a combined total of just over 1 million vehicles sold.
However, last year the landscape of the automotive industry looked markedly dissimilar. Sales of ICE vehicles had dropped by almost 20% from their peak, to 69 million, while plug-in vehicles had surged to 10.4 million. That being said, even if plug-in hybrid vehicles were added to the ICE category, the overall picture remains largely unchanged.
BNEF expects "the global combustion vehicle fleet to be relatively steady for the next three years before starting to decline in earnest from 2026 onward as the EV fleet swells."
Nonetheless, what ultimately counts for oil demand is the replacement of existing vehicles with new ones, and that's why the peak of oil consumption is expected to occur around 2027. This projection is significantly earlier than what was anticipated just a few years ago in 2016, when estimates suggested that the year of peak oil consumption would be 2036. However, more recently, the International Energy Agency has predicted that global fossil fuel demand will reach its peak within this decade.
IEA Executive Director Fatih Birol said, “Even with today’s policy settings, the energy world is shifting dramatically before our eyes. Government responses around the world promise to make this a historic and definitive turning point towards a cleaner, more affordable and more secure energy system.”
You can read the full World Energy Outlook report from 2022 here.
August 2022 saw a brief drop in demand for electric vehicles. Consumer desire may fluctuate from month to month, but the overall trend is clear: More people want EVs in 2023 than ever before. What caused the short decline in demand, and why do electric car commercials seem to be popping up constantly? The answer is multifaceted.
What Caused The Dip?
According to the car-buying trends website Edmunds, 34% of vehicle shoppers last year cited gas prices as a very important factor in their purchasing decisions. A full 12% said it was the most important. Consistent with this data, Edmunds reported that one-quarter of site visitors shopped for an EV in March 2022 while gas prices were high. As gas prices fell in August, however, only 17% of shoppers wanted an electric vehicle.
Why Are EVs Taking Off Overall?
Fuel prices will always fluctuate. Although there may be a slight dip in EV demand while gas prices are low, the larger trend is that electric vehicle sales are climbing. More people are buying EVs than ever due to tax incentives to go electric, increased public awareness of climate change and the desire to charge their cars from the comfort of their homes.
Consumers got a preview of what life would be like without tailpipe emissions in March 2020. Air quality vastly improved in some areas as transportation ground to a halt, to the point that buildings previously shrouded in smog were unveiled to the public’s eye. This firsthand lesson in air pollution prompted people to rethink their vehicle choices.
People already car shopping decided to cut ties with internal-combustion engines forever, vowing to reduce their ecological footprint and save money on gas in the process. The choice to go electric made a lot of sense, especially in cities, where charging stations are easier to come by. Simultaneously, improved battery technology and charging station infrastructure eased consumers’ range anxiety. Fewer people today are worried that they won’t make it to a charging station in time.
Furthermore, electric vehicles are no longer synonymous with dinky little European cars, a hurdle manufacturers had to overcome to appeal to an American audience. There are electric SUVs and pickups as well. The trend of relegating electric batteries to clown cars seems to have lost momentum since larger families want room for their kids, ranchers need trucks that can haul hay and — let’s face it — most people want a normal-looking ride.
As EVs expand to a broader audience, the market is no longer just edgy early adopters looking to make an environmental statement. Making EVs blend in with city traffic is an important step toward normalizing their use.
Why Demand Outweighs Supply
Many shoppers want to buy EVs in the U.S., but there aren’t enough electric cars for sale right now. In some cases, waiting lists stretch years into the future, and electric vehicle owners are selling their used cars for a premium — sometimes fetching a higher price than they paid at the dealership. Why?
Soaring global lithium prices, a dearth of EV battery recycling technology, chip shortages and unevenly distributed subsidies all contribute to the problem. However, as kinks in the supply chain work themselves out, manufacturers will almost certainly be able to match the EV demand. It’s only a matter of time.
Additionally, the Inflation Reduction Act will start giving tax credits for certain EV models, bolstering the electric vehicle market. 2023 is set to be a fantastic year for EV sales.
A Hopeful Sign
The fact that so many people want to buy an EV is good news. Society can’t run on gas guzzlers forever, especially as the population grows and people are forced closer together. Electric vehicles emit no air pollution, reduce dependence on foreign oil and gas, allow people to charge their cars overnight, and make the roads quieter. If we’re lucky, they might even look good in the process.
About the Author:
Jane Marsh works as an environmental writer, covering topics such as sustainability and green living. She is also the founder of Environment.co. Jane Marsh is an opinion columnist for the CEOWORLD magazine. Connect with her through LinkedIn.