A Surge in the EV Market

May 1, 2023 | Industry

By Jim Henry

Separately, on April 12, the EPA published new and stricter proposed emissions standards, aimed at forcing the changeover to EVs even faster. EVs could account for 67% of new, light-duty vehicle sales by the 2032 model year.

The new-car industry seems like it’s all EVs, all the time, lately. The month of April saw a lot of news on the EV front. On April 18, new – and really complicated – EV incentives started to take effect under the Inflation Reduction Act, which passed in August 2022.

At face value, the new rules sharply reduce the number of EV models that get the maximum $7,500 tax incentive, limiting eligibility to vehicles that are built in North America. Manufacturers and dealers expect a major loophole for EVs that are leased for business, but some experts warn it may not be as easy as that.

There are also limits on how much an individual buyer can earn, and a ceiling on how much the vehicle costs.

The new incentives also impose a lot of other requirements on manufacturers – for example, where they source battery components and even the materials that go into the batteries, and much more. Some requirements are phased in over time, and many details are still to be worked out, experts said.

The biggest thing consumers want to know is whether a particular vehicle qualifies for an incentive. Thankfully, that’s fairly easy to check on the U.S. Environmental Protection Agency (EPA) website, fueleconomy.gov, said Andy Koblenz, National Automobile Dealers Association general counsel, and executive vice president of legal and regulatory affairs.

“It’s really not important for the consumer to understand why a vehicle either does or does not qualify for a certain level of tax incentive,” Koblenz said, at a webinar sponsored by the Federal Reserve Bank in Chicago on April 6.

“All the consumer needs to know is the answer,” he said, according to a transcript. That is, the answer to whether the vehicle qualifies, and for how much.

Separately, on April 12, the EPA published new and stricter proposed emissions standards, aimed at forcing the changeover to EVs even faster.

The EPA projects that under the new proposed rules, EVs could account for 67% of new, light-duty vehicle sales by the 2032 model year. Previously, the Biden administration had set a non-binding goal of 50% share of new-vehicle sales for EVs by 2030.

Meanwhile, electric vehicles also dominated the news at the recent New York International Auto Show in early April. Auto show press events kicked off with the battery-electric 2023 Hyundai Ioniq 6 sedan winning World Car of the Year, World Electric Vehicle, and World Car Design of the Year, on April 5.

At the same event, SangYup Lee, the head designer for Hyundai and Genesis, received the award for 2023 World Car Person of the Year. World Car of the Year awards are chosen by a jury of 100 automotive journalists from 32 countries.

Also at the auto show, Kia debuted the 2024 Kia EV9, a three-row, battery-electric SUV. U.S. sales are expected to begin around November 2023.

The first sales will be imports from Korea, but in 2024, the company expects to start building the Kia EV9 at its shared plant with Hyundai in West Point, Georgia. Kia officials said that was the plan even before the new EV incentive scheme, but the new U.S. incentives accelerated

the change.

Kia expects consumers to be able to get the $7,500 EV incentive through leasing, on the early, imported models.

That might not be as easy as it sounds, said Bob Lickwar, a Connecticut-based partner for UHY LLP, and managing director at UHY Advisors, a national accounting and advisory firm.

Without commenting on any brands specifically, Lickwar said there could be exceptions to the rule on commercial leases as a way to get the $7,500 incentive. “It’s not that clear-cut,” he said in a phone interview on April 13.

Amid the auto show celebrations, test drives, and other new-EV introductions, electric vehicles also generated a lot of anxiety, especially for franchised, new-car dealers.

“They’re coming, whether we’re ready or not,” said Geoffrey Pohanka, 2023 chairman of the National Automobile Dealers Association, at the New York Auto Forum conference on April 4, sponsored by NADA, J.D. Power, and the Greater New York Auto Dealers Association, which hosts the auto show.

According to Cox Automotive’s Kelly Blue Book, EV sales in the first quarter reached a record 258,885, an increase of 44.9% vs. the first quarter of 2022, and representing record market share of 7.2%.

That sounds like a lot, but some experts expect 27% EV market share by 2026, on the way to the U.S. government target of 50% EV adoption by 2030 – even higher, depending on the final form of the new EPA rules.

That’s lightning fast, in an industry where it can be up to eight years between all-new model redesigns.

“I don’t think the manufacturers can make it,” Pohanka said. He is chairman of Pohanka Automotive Group, based in Capitol Heights, Maryland, with 21 new-car dealerships.

The switch to electric vehicles raises familiar concerns in the auto industry: the charging infrastructure, how fast the U.S. government wants to make the change, and whether consumer demand is sufficient.

Pohanka says one of his chief concerns is that government regulation and government incentives are driving the speed of EV adoption, instead of consumer demand. He’s also concerned that at the early stage of EV adoption, affordability is a real problem for most consumers.

“It’s not a consumer process, it’s mandated by the government,” he said in a session at the New York Auto Forum called, “The Infrastructure Challenge on the Road to the Electric Future.”

For many new-car dealers, there’s a special feeling of alarm about EVs, because some Original Equipment Manufacturers (OEMs) seem to be flirting with selling electric vehicles direct to consumers like Tesla, where the dealership becomes primarily a delivery point, for a product that consumers order online.

Some dealers aren’t that worried about it. Under a so-called “agency” setup for factory-direct sales, dealerships might offset lower new-car margins with lower costs, like smaller showrooms with less inventory, and potentially, separate service facilities on less-costly real estate.

At the auto show, Pohanka called for continued dialogue with OEMs about direct sales, but he reiterated that NADA has strong reservations. He said NADA and state dealer associations would defend “dealers’ rights.”

Jim Henry is a New Jersey-based, veteran freelance reporter covering the U.S. auto industry, writing for trade magazines Automotive News and WardsAuto, plus Forbes and others. Concentrations include U.S. light-vehicle sales, dealership Fixed Operations and Finance & Insurance, mergers and acquisitions, publicly traded dealer groups, OEM financial results, and Connected, Autonomous, Shared, Electric Vehicles. He is also the former department manager, corporate strategy and market research for Mercedes-Benz USA, and a former president of the International Motor Press Association.

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