Spiking global oil prices are causing pain at the pump for hard-working Americans, but unexpected relief is here. Electric vehicles (EVs) are now cheaper in most states than their gas counterparts, and can save drivers thousands — if the Senate passes legislation that’s languished for months.
These inflation-busting economics hinged on the $7,500 federal EV tax credit. GM and Tesla have surpassed the cap on credits, while Ford, Nissan and Toyota will likely exceed it this year — putting EVs out of reach for most working families. But the Senate is currently considering reconciliation legislation to extend the cap on these credits for automakers who have exceeded it, and even to increase the EV tax credit to $10,000. If it passes a package that does both, EVs would be cheaper than gas cars in every state, saving drivers money starting the day they drive off the lot.
Even though EV lifetime operational costs are cheaper thanks to their incredible efficiency, lower fuel costs and less maintenance, consumers can be turned off by higher sticker prices compared to a gasoline car. Nearly half of consumers think EVs are too expensive to own, meaning many consumers choose gas-powered vehicles, handcuffing themselves to volatile gas prices for years.
But this belief is wrong. While EV sticker prices may typically be higher than gas-powered cars, 85 percent of Americans finance their car purchase through monthly payments. This spreads out cost differences over several years, allowing fuel and maintenance savings to more than offset higher loan costs. Financing a new EV gets considerably cheaper thanks to the federal EV tax credit, state EV rebates and state sales tax exemptions.
When financing and operating costs of six different EVs (the Hyundai Kona SEL, Hyundai Kona Limited, Ford F-150, Kia Niro, Volvo XC40 and Nissan LEAF) are compared to their gas equivalents, these credits and rebates combined with overall lower operational costs , made the EV cheaper on a monthly basis over the financing term in most states.
In fact, the Hyundai Kona SEL and the Ford F-150 Lightning, are cheaper in every single state. For others, including the Hyundai Kona Limited, the Volvo XC 40, and the Nissan Leaf, the EV model is cheaper in more than half of states. But even in states where the EV does cost more, it’s often by less than $15 a month.
Here’s where the Senate must choose if Americans save thousands or get locked into high gas prices. Extending the $7,500 credit helps ensure EVs remain affordable for most Americans. Expanding the tax credit to $10,000 would make EVs a real option for working and middle-income families, not just the wealthy. At this amount, which is below the $12,500 amount the Senate considered last year, nearly every EV would be more affordable than its gas-powered counterpart in every state. Extending EV tax credits would also prevent a sales drop-off in some of the most popular American-made models, like the F-150 Lightning, once manufacturers hit the cap on credits.
The Senate extending and expanding EV tax credits also invests in the United States’ energy security by cutting demand for foreign oil. In fact, passing the reconciliation package’s proposed EV tax credits would cut US oil consumption 180 million barrels per year by 2030 — roughly twice what the US imports from Russia.
But if the Senate fails to act, losing the federal tax credits throws these pro-consumer savings in reverse, making EVs more expensive. If Americans can’t afford an EV without the federal credit, many more would buy the gas alternative, chaining them to volatile gas prices and missing an opportunity to free our country from dependency on petro-state dictators.
Gas prices are near record highs due to the war in Ukraine, and aren’t likely to budget as the Russia oil embargo continues and significant domestic oil production increases are years away. On the other side of the equation, EV battery prices are projected to continue falling, with EVs likely cheaper than gas cars in the next five years.
But we aren’t there yet. In the next few years, EV tax credits are essential to making sure it’s not just wealthier households who can afford a gas-free car, and that all Americans have the opportunity to put thousands of dollars spent on gas back where they belong — in our pockets, not Russian President Vladimir Putin’s.
Robbie Orvics is senior director of energy policy design at Energy Innovation, a non-partisan climate and energy think tank.