President-elect Donald Trump has vowed to repeal the electric vehicle tax credits ushered in by the Inflation Reduction Act, but that move is surprisingly supported by his new buddy-advisor-campaign financier Elon Musk. But a new study from J.D. Power indicates that Tesla's sales really do stand to take a hit if those credits go away.
The auto industry marketing research firm's latest E-Vision Intelligence Report has some fascinating new data about which automakers benefitted most from the tax credits, which cut up to $7,500 off the price of a new EV purchase or lease if certain conditions are met. The biggest winners: Volkswagen, Chevrolet, and Tesla, in that order.
"Among all EV purchase drivers, tax credits and incentive programs are the most frequently selected reason for purchase among Volkswagen (81%), Chevrolet (77%) and Tesla (72%) buyers," the study said. The report was based on a survey of new car buyers but interestingly does not include Tesla Cybertruck, Polestar, and Rivian owners.
To qualify for EV tax credits, generally speaking, the EVs and their batteries must be made in North America, as the IRA is meant to incentivize local production.
According to the survey, the "premium vehicle segment"—of which all Tesla models are included—benefitted the most from the tax credits. While that does play into the criticism that tax dollars are essentially helping wealthier people buy expensive cars, it also makes sense; EVs for now are still more expensive than their gas-powered counterparts and cheaper, more mainstream models are just now starting to debut after years of being confined to the higher end of things. In the "premium" arena, "64% of EV owners say tax credits and other incentives influenced their purchase decision. In the mass market segment, 49% of EV owners were influenced by tax credits and incentives." And it seems like the inclusion of Tesla as a "premium" brand helped skew the data in that direction as well.
After all, a Volkswagen ID.4 can be obtained at fairly mainstream prices now, and all of Chevrolet's EVs represent great values that aren't too far off their gas-powered counterparts depending on equipment and trim levels. Thus, it could be argued that the tax credits are succeeding in moving the EV sector into more normal levels of pricing; as EV sales increase and the battery supply chain grows, prices will continue to go down.
The numbers are fascinating: "Among premium brand EV owners, 64% say that tax credits and other incentives were a primary driver of their decision to purchase or lease their EV," the study said. "Among mass-market EV owners, 49% selected their vehicle based on tax credits and incentives. Industry-wide, 87% of all EVs purchased or leased in 2024 received the federal EV tax credit."
Moreover, the tax credits are helping people to save money at a time when new car prices are through the roof and everyone's getting squeezed out on grocery prices. "On average, consumers purchasing or leasing a new EV in 2024 saved $5,124 thanks to federal EV tax incentives," the study said. "That’s up from $4,302 in 2023 and $1,629 in 2022. For EV leases in 2024, the average amount claimed in federal tax incentives was $6,696, and for sales, it was $4,257."
So whose buyers were least motivated by the EV tax credits? According to J.D. Power, that would be Toyota, Hyundai and Kia—a truly interesting result. None of those Asian automakers build their EVs in America (though this is changing right now with the new Kia EV9, Hyundai Ioniq 5 and others) and so they do not qualify for the tax credits unless they're leased. Somewhere between a fifth and a third of those brands' buyers said they were motivated by the tax credits. In Hyundai and Kia's case, EVs also benefitted from aggressive manufacturer and dealer discounts. That all tracks with what we already know: most Hyundai and Kia EVs are leased, and it may speak to why the Korean automakers' executives say they aren't worried about sales dropping if they lose the credits.
The study also confirms one thing we've been hearing for the past few years: that the EV tax credit scheme is confounding to many buyers and they probably aren't getting much help navigating it from their dealers. "All told, 43% of EV shoppers say they would describe their understanding of current EV incentives as 'vague,' 'minimal' or 'don’t know,'" the study said. "Just 17% say they have a 'strong' understanding of EV incentives."
There are a few things we can glean from all of this data. First, it's yet another data point that counters Musk's claim that losing the tax credits "probably actually helps Tesla" in the long term, unless he's counting on a total collapse of the sector without the IRA. Second, losing the tax credits will probably hit reset on the calculus the entire auto industry has been working on for the past few years. And finally, it's further proof that the tax credits are helping to move metal and save people money at the same time. “Having that extra incentive was enough to convince people to buy their EV,” Brent Gruber, executive director of J.D. Power’s EV practice, told Automotive News. “It wasn’t just the price alone.”
