Demand Spike Creates Budget Concerns
DEEP announced that high recent utilization rates of its CHEAPR EV purchase incentive are causing it to pre-empt its planned August 15th incentive cut with a larger cut taking effect next week. Their concern is that the budget could be depleted, forcing a suspension of the program until a further tranche of funding is received. (This has happened in other places and it sows confusion among consumers and dealerships alike.)
The standard incentive for a battery electric vehicle (BEV) was scheduled to be cut to $1000 (from $1500) on August 15th, but will now be reduced to $500 as of August 1. The incentive for plug-in hybrid (PHEV) vehicles will be cut from $750 to $500. The Rebate+ rebates for new vehicles are $3500 (BEV) and $2000 (PHEV). The planned Community+ rebate is not implemented at this time.
For a more detailed discussion of the different rebate levels, see our previous post.
Soft Q2 EV Sales
EV sales nationally were down in the second quarter by 6.3%, which equated to about 21,000 units. This is from Cox Automotive, and the overall decrease was the same size as the decline in Tesla sales. There was variable performance from other manufacturers, with GM and Honda brands posting the strongest percentage increases. Still, Tesla’s sheer size weighs on the market as a whole. A strong Q1, still has year to date sales up 1.3%.
Be aware that there is a lot of apples and oranges reporting out there. When the press reports EV sales, as with Cox, they usually refer to BEV sales, and they do a poor job of labeling the data. The goals in CT are tied to BEVs, PHEVs, and Fuel Cell, though there is little of the latter. Many of the legacy automotive brands are hedging in the face of policy headwinds and pulling back on EVs in favor of PHEVs and conventional hybrids. Strong sales of these powertrains would not be reflected in the Cox data.
Pull Forward – The Storm Before The Calm
Ever since the passage of the reconciliation bill, it was expected that there would be pull-forward demand as consumers who are in the market move up purchases to beat the September 30 deadline. Our understanding is that the vehicle has to meet the “placed in service” requirement (i.e. consumer takes delivery) to be eligible for the incentive. There was a slim hope that the requirement could be the slightly looser “signed contract,” but that does not appear to be the case.
This predictable consumer behavior is being magnified by the numerous deals out there. We have seen significant discounting being offered by Honda, Hyundai, Kia, Mercedes, Volkswagen, and Tesla. And that’s probably not all of it. Also, many legacy brands are offering “conquest” incentives to lure away Tesla owners. We don’t quote specifics here because the dealerships have pricing discretion. Tesla posts its deals on its website, but they can change without warning.
As we have been saying since the election, now is the time to make your move.
CT Rebate Levels
CHEAPR rebate levels had actually been trending downward this year. The programs stats page has data through partial June. But looking through May, expenditures were down 26% and units were down 13% year over year. (There was a reduction in the BEV incentive from $2250 to $1500 on January 1.)
DEEP has data internally that are more current, so it appears that the spike is a very recent thing. Recall that DEEP initially postponed an anticipated rebate cut for July 1 to August 15th. This suggests that there has been a hockey stick level of change, presumably coinciding with the legislation. They seem to be open to revisiting incentive levels if demand falls off in Q4 as everyone expects.
It is unfortunate that there is a rebate cut. Hopefully, some of the discounting will be an offset. It would be more unfortunate if it can’t be restored after the federal incentive sunsets. It may also be illustrative, generally speaking, of challenges that states face as they try to backfill the gaps on many fronts, notably health care and nutrition, that are being created by the federal legislation.