Analysts expect more EV leases thanks to tighter IRA rules

Not ready to pull the trigger on buying an EV? Consider a lease, instead.

EV leases are growing in popularity, driven in part by tightening restrictions on consumer tax credits in the Inflation Reduction Act.

The IRA ushered in a program aimed at boosting consumer adoption of EVs and promoting domestic manufacturing of the vehicles and their components. The program includes a $7,500 tax credit consumers can claim on EV purchases that meet certain pricing, assembly, and sourcing restrictions, among other requirements.

A loophole in the law, however, is spurring interest in leasing EVs. It allows commercial EV purchasers to get the tax credit without meeting some of the IRA requirements; companies can claim the credit and pass on the savings to car shoppers. The loophole remains in place even as more stringent eligibility restrictions on EV purchases go into effect this year.

“Leasing continues to be an attractive option for EV consumers since it’s a loophole to receive the Inflation Reduction Act incentive,” Stephanie Valdez Streaty, director of industry insights for Cox Automotive, said during a recent presentation. “EV leasing increased by 159% from January to the end of the year. This leasing trend should continue because the new IRA rules to incentivize domestic sourcing will disqualify many models that were previously eligible for the full or partial tax incentive.”

Valdez Streaty said only 14 EV models qualify for the credit out of more than 50 models currently on the market, and Cox analysts expect leasing to tick up to about 25% of EV sales on a yearly average in 2024.

Valdez Streaty cited recent data that indicates that leasing an EV is cheaper than financing one; a 60-month lease payment averages $809, compared to a $1,033 average monthly cost for a 60-month loan.

EV companies also are increasingly experimenting with microleasing, Bloomberg reported, allowing drivers interested in trying out the latest models and technologies to lease vehicles for short periods of time, and giving automakers another tool to manage the EV inventories that are piling up on dealer lots.

But Charlie Chesbrough, Cox’s senior economist, noted that leasing isn’t popular across much of the US.

“It’s less than 10% of sales activity in vast parts of the country,” he said in the presentation. “Although the offers are going to be very strong for EVs, it may be a tough argument to make for some buyers out there who aren’t familiar with leasing.”

Still, Cox analysts expect car dealers and manufacturers to continue to push leases on people shopping for EVs.

“For consumers, not only is it a good way to have a lower monthly payment if you lease, but also it gives you access to this technology if you’re not sure about your long-term commitment,” Valdez Streaty told Tech Brew.