Tesla price cuts and a tax credit are driving used EV sales

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Tesla price cuts and a tax credit are driving used EV sales


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After several years of strong growth in sales of electric vehicles, there is evidence that the supply of used EVs is starting to grow as well. Data gathered by industry analyst Cox Automotive shows a 32 percent increase in sales of used EVs through licensed car dealers to 42,753 cars for the first three months of 2023. Cox says this does not include private party sales and that used EV sales in the first quarter of this year represent twice as many as were sold in Q1 2021.

“Every new vehicle eventually becomes a used vehicle,” said Jonathan Smoke, chief economist of Cox Automotive. “Our data sets indicate used EV sales will begin increasing rapidly from here, following a clear path set by new sales. In Q1, our team at Manheim [a wholesale marketplace for used cars] processed a record number of used EVs in the wholesale market. This is an approaching challenge for the industry we’ve already begun to embrace, as placing a value on a used EV is a new set of skills we all need to develop and refine.”

More than 900,000 used cars went through Manheim in Q1 2023, of which 9,800 were EVs—a tiny overall percentage but an increase of 40 percent compared to Q1 2022.

This year, Cox expects new EV sales in the US to exceed a million cars, and for Q1 2023, it says EV adoption grew to 7 percent of all new vehicle sales. Most of those new EVs still wear a Tesla badge; the company’s market share may be shrinking as other OEMs launch new electric models, but it still accounts for more than half of all new EVs sold in the states.

As we’ve covered recently, Tesla has been engaging in repeated rounds of price cutting to spur sales, taking thousands of dollars off the MSRP for the Model 3, Model Y, Model S, and Model X.

Cox says this has had the welcome effect of driving down used EV prices, albeit not by very much—prices have dropped by about four percent year on year, Cox says. Now, the average purchase price of a used EV is $43,000; the average purchase price of a new EV is a much heftier $59,000.

There’s now a tax credit for used EVs

Lots of Tesla sales and falling prices are probably not the only factors in this used EV sales boom. When Congress passed the Inflation Reduction Act of 2022, it revamped the clean vehicle tax credit rules and added a credit of up to $4,000 for purchasing a used EV.

Not every used EV qualifies for the used clean vehicle tax credit. For starters, anything close to that $43,000 average sale price is out—there is a $25,000 maximum price for eligibility, with a credit of $4,000 or 30 percent of the purchase price, whichever is lower.

The income caps are also much lower than the income caps for new EVs, and the credit is only available if you purchase a used EV from a car dealer, not a private party. But that car dealer is allowed to claim the credit and pass the savings on to the buyer now.

A used EV can’t be too new, either; it must be at least two model years earlier than the calendar year in which it is being bought as a used car. Other conditions are similar to the new clean vehicle tax credit, including a maximum gross vehicle weight under 14,000 lbs and a battery capacity of at least 7 kWh, which will include some plug-in hybrid EVs, like the Chevrolet Volt.



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