Dave Walters of Orange County, California, stands by his newly leased Hyundai Ioniq 5 electric vehicle.
Provided by Dave Walters
Fed up with high gas prices and enticed by federal tax credits, Dave Walters decided he wanted an all-electric Hyundai Ioniq 5 for his next vehicle.
The Orange County, California, resident initially thought of purchasing a used model, until he learned he could lease the vehicle and reap the benefits of a key loophole under the Inflation Reduction Act.
Buying a used Ioniq, which is produced in South Korea and Indonesia, would not earn him $7,500 off through a federal tax credit. Leasing the vehicle would.
“I ran the numbers — what it will be without the leasing credit and with the leasing credit — and that form of put me excessive and that was the principal thing of why I went in that direction,” he said. “It was just a few hundred dollars less a month.”
Walters is strictly the form of consumer Hyundai Motor and other automakers have began to focus on for EV leases to capitalize on a loophole within the IRA that permits vehicles produced outside North America to qualify for the credits. It’s something lawmakers reminiscent of U.S. Sen. Joe Manchin, D-W.V., intended the foundations to dam.
Under the IRA, leasing is categorized as business business and due to this fact exempt from regulations that require the vehicle and battery components to be made in North America. Most EVs on the market today don’t qualify for the complete tax credit due to where the vehicles or components are built.
Sen. Joe Manchin, D-W.V., talks with fellow legislators on the House floor before a joint meeting of Congress on the U.S. Capitol in Washington, April 27, 2023.
Elizabeth Frantz | Reuters
But leasing could save drivers hundreds, so long as the businesses receiving the credits pass the savings on to consumers.
“I’m not surprised that the manufacturers are saying that they are going to do more leasing,” said Charlie Chesbrough, Cox Automotive senior economist. “The IRA rolling on EVs and allowing them to qualify for that $7,500 really is a game-changer, and that makes a huge effect on our monthly payment.”
For a $50,000 EV and a 36-month lease, Chesbrough estimates the complete $7,500 tax credit equates to $222 in monthly savings for a consumer.
Auto research firm Edmunds reports about 37% of EVs bought in April were leased, up from 25% in the course of the first quarter and 13% last yr.
“It form of creates a loophole for automakers to focus on more affluent customers who’re probably more prone to give you the option to afford and really get approved to purchase an EV,” said Jessica Caldwell, Edmunds executive director of insights. “It also allows them to level the playing field against competitors who get the complete tax credit when purchasing.”
The proportion of Hyundai Ioniq 5 vehicles which are leased spiked from about 2% to start this yr to greater than 30% in April, in response to Hyundai Motor America CEO Randy Parker. Starting this month, the corporate is offering a $499-a-month leasing deal for the vehicle — lower than the industry’s average lease payment of $577, in response to Edmunds.
The Kia EV6 on display on the Recent York Auto Show, April 13, 2022.
Scott Mlyn | CNBC
“We wish to proceed to push and highlight leasing as much as we will so we will proceed to reap the benefits of the tax credit and consumers can reap the benefits of the tax credit,” Parker told CNBC. “Right away, that is how the cards have been dealt.”
Kia and Ford also say they may look to extend leasing on their EVs to lower the pricing and increase sales.
Kia expects to extend its EV leasing from below 15% now to as high as 40% in the approaching months, Watson said. Like Hyundai, Kia is offering a $499 leasing deal for its EV6 with a $4,999 initial down payment.
“For the subsequent several years, Kia goes to should lean heavily into leasing to give you the option to pass along that $7,500 credit to customers. And so that is what we intend to do,” said Eric Watson, vp of sales operations at Kia America.
Prior to the IRA passing, Hyundai and Kia, that are owned by the identical South Korean parent company, were second within the U.S. in EV sales behind Tesla. But their sales have since fallen behind those of General Motors and Ford, each of which have vehicles which are fully or partially eligible for federal tax credits.
Hyundai and other automakers that became ineligible for the credits under the IRA opposed the regulations, searching for an extended ease-in period for the brand new rules or broad exemptions based on their U.S. EV plans.
“It gives us a lifeline. I would not call it leveling the playing field,” Watson said of leasing qualifying for the $7,500 tax credit.
President Joe Biden stands next to a Ford Mustang Mach-E SUV during a visit to the Detroit Auto Show, to focus on electric vehicle manufacturing in America, Sept. 14, 2022.
Kevin Lamarque | Reuters
A Ford spokesman said the corporate’s credit arm is working on a leasing strategy for electric vehicles reminiscent of the Mustang Mach-E, which is produced in Mexico and currently qualifies for half the federal tax credits if purchased. The corporate’s electric Ford F-150 Lightning is eligible for the complete $7,500.
“We will lease electric vehicles and you will be hearing more about that from us pretty soon,” Ford CFO John Lawler said last month.
A spokesman for GM said the corporate isn’t changing its leasing strategy for EVs, as all of its vehicles qualify for the complete tax credits. Only about 3% of GM’s EVs are leased, he said.
While the lease terms are typically only just a few years, automakers have touted EVs as drawing recent customers to their brands.
“The sooner you get these customers inside your brand, especially with the brand new technology, I believe the higher likelihood you have got to maintain them,” Edmunds’ Caldwell said.
And temporary leasing could also be a beautiful option for a lot of consumers reminiscent of Walters, who traded in a 2009 Nissan Murano, as EVs remain an emerging industry with changing technologies and a big number of recent entries.
“I desired to form of dip my toe into it and see if I actually prefer it. It’s only been six weeks however it’s been really good to date,” Walters said. “I actually enjoy driving it and I actually enjoy not having to pay for gas.”
