Michael Bettencourt is a long-time EV owner, both of BEV and PHEV vehicles, and automotive journalist whose vehicle reviews have specialized in EVs and plug-in hybrids for the past 10 years. We’re following Michael in a new series about the experience of EV ownership, in the short and long term.
The pattern goes way back, and may still apply today: new drivers (not always super young) start their driving career with an older, less expensive vehicle, sometimes handed down to them or sometimes purchased. Then they save and work their way up the income ladder until they can afford something newer and nicer.
But what if you don’t want your parents’ gas-powered hand-me-down, and would rather use the potential cost savings of a plug-in vehicle to purchase a new vehicle? This cost savings adds a relatively new level of complexity to the question of whether to go new or used for your first battery electric vehicle (BEV) or plug-in hybrid electric vehicle (PHEV).
There’s no correct choice that’s best for everybody.
There’s no correct choice that’s best for everybody, but after buying both new (BEV) and used (PHEV), I’ll tell you what worked and didn’t work for us, and why both new and used plug-in vehicle buyers have much more to consider now when it comes to vehicle options, tax incentives, and emerging data on battery longevity.
What worked for us: both new and used, for different reasons
After my wife and I bought our first brand new vehicle in late 2002 (a hot-selling ’03 Pontiac Vibe built in Fremont California in a then-GM/Toyota joint venture plant later taken over by Tesla), I had told myself that we would never buy a new vehicle again. Not because we weren’t happy with it, but because once we saw the final sticker price, I couldn’t help but look at the nicer, quicker, and more luxurious used vehicles out there for the same money.
But years later, after sampling a few early model EVs including a Tesla Roadster and a 2011 Nissan Leaf at its media launch event, the timing coincided for us to look for our next family vehicle. We were looking for something small and fuel efficient, but more comfortable and luxurious than the Vibe.
At that time, the super quiet and refined Nissan Leaf with its heated steering wheel and four outboard seats was a major step up in comfort compared to the Vibe. And you couldn’t get much more fuel efficient in 2012 than using zero gas.
The regrets, however, for buying another new car came in quick succession: bam, the next year a new heat pump was added to the Leaf for extra winter range; bam, a major price chop, roughly $6,000 back then; bam-bam, alarming battery degradation, which was a more prominent issue when you’re only starting with about 80 miles of range and the limited quick-charging infrastructure near us at the time.
Government EV rebates are great, but tend to push down the used prices of EVs.
These gut punches led us to trade in our Leaf in 2016, at which point we experienced another EV budget body blow: serious depreciation.
This is when we realized that government EV rebates are great, especially when received up front, but these incentives tend to push down the used prices of EVs. At least they did before the global supply chain crunch when the lack of new vehicle inventory sent used EV prices (and many ICE ones) soaring.
Used EV prices have since floated downward as new vehicle supply has started increasing, so depending on where you are and what vehicle you’re interested in, it’s certainly worth keeping an eye on used EV options in your area – or even further afield if you’re willing to go far for a true bargain.
For us, the Leaf’s high depreciation drove us into the arms of our current 2013 Ford C-Max Energi PHEV, which at the time was coming off lease. This was another depreciated plug-in vehicle that was slightly newer than our Leaf and roughly the same price, but came standard with zero range concerns and still enough electric range to make my wife’s daily commute largely gas-free.
Going to our second plug-in vehicle was much easier overall. For one thing, we already had an L2 charger in the garage. And once you become used to smooth EV power, barely noticing gas price swings, and coming out to a nicely cooled or warmed-up vehicle, we knew we couldn’t go back to a non-plug-in vehicle.
Rebates And Leasing Loopholes Are Key Considerations
The EV landscape has shifted dramatically in North America with the introduction of the Inflation Reduction Act (IRA) last year and its changes to EV rebates, changes that will shift dramatically again at the start of 2024. The IRA eliminated the long-standing federal EV tax rebate for vehicles not produced in North America (including Mexico), as well as instituted requirements for half of the critical battery materials and components to be processed or built on this continent, or one in which the U.S. has a free trade agreement. For consumers, this means that fewer plug-in vehicles qualify for the full $7,500 tax credit.
The IRA also instituted new income caps for potential owners, so if your personal or household income is above a certain amount, you no longer qualify for these new EV government incentives.
In October 2023, the U.S. government clarified its long-awaited 2024 federal EV tax incentive guidelines. The good news is that the government actually changed the EV tax credit you get when you file your taxes (if you had the eligible room) to a point-of-sale tax rebate program. This means you will get up to the maximum of $7,500 off your new EV at the time you buy it, and the dealers will have to fetch the funds back from the feds after you walk out with your new plug-in vehicle.
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For those looking to buy a new EV, the just-announced changes are detailed here, but the key change of $7,500 upfront may change the calculus of whether you prefer to go new or lightly used. The rebate is comforting to those looking for a full warranty on a shiny brand-new vehicle, especially if you’re working without another vehicle to trade in. It will help blunt the higher upfront cost of a new EV for more folks.
For those looking for a new EV that happens to be built outside the NAFTA zone (Hyundai group E-GMP vehicles and the BMW i4 are among many worth considering), the government currently allows one major loophole: these dealers are eligible to receive the full $7,500 as commercial owners of these vehicles, and are then free to pass these savings onto the consumer in the form of a lease.
Sometimes they do, and sometimes they don’t. And sometimes dealers will partially forward on the tax savings, often depending on vehicle supply and desirability.
Consider Used Rebates, Battery Degradation, And Lease Takeovers
If you’re leaning towards a used EV, the IRA also introduced federal rebates for used EVs that cost $25,000 or less. The rebate amount is 30 percent of the cost of the vehicle, up to $4,000 max. Sure, that’s just over half of the new vehicle rebate, but proportionately, it’s a worthy and helpful amount. It’s also a greater value than what Canada provides for new EV rebates north of the border (C$5,000, or roughly US$3,660 as this is written).
Many EV buyers may shy away from buying a used BEV due to concerns over battery degradation over the long term, in part because of horror stories about early battery replacement costs. But recent studies and market surveys have come out that suggest battery degradation – and the expected decrease in vehicle range that will inevitably follow – is far less than many feared.
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There is certainly some degradation in EV range as each year and full charging cycle passes. But for vehicles with modern battery thermal management (including liquid cooling, so basically anything but a Nissan Leaf, Mitsubishi i-MiEV, or early Outlander PHEV), recent battery and range studies by Recurrent and Geotab fleet services suggest that Tesla batteries in particular, as well as actively cooled batteries in general, are holding up better than predicted.
Is a used EV test drive and an inspection by a qualified technician of a used EV still a worthy step before purchase? Yes, for sure. Make your used EV offer contingent on this once-over, and ask that any cost associated with the technician’s assessment be covered by anything found that could affect the final selling price.
When we bought our used PHEV, it was coming off lease and we scored a good deal on it. But with interest rates and inflation so high these days, it may be worth looking at a lease takeover that locked in an interest rate when prices and rates were largely lower (maybe outside Teslas). Lease takeovers are when motivated buyers looking at multi-thousand-dollar penalties to break their lease contract agree to port their lease over to a new buyer.
During the extreme vehicle supply-crunched days of the COVID era when used EVs were going for more than brand new ones, hungry buyers were paying large upfront cash payments for the privilege of taking over the few new EV leases that folks were willing to give up. But now that the new EV supply has started flowing again and used prices have floated downward, more deals are available on the lease takeover side as well.
A lease takeover may doubly help the lessee at the end of the term, as the residual values of these cars may have been set well before used EV prices shot up. That means for many models (outside Teslas and more recent leases), the balloon payment established early on to buy out the vehicle at the end of the lease may be much less than its current value.
Unfortunately, Teslas make for a much less appealing lease product, new or used, because once you’re done renting them, Tesla wants them back, with no buyout option. If you’d like to buy it at lease end, you’re looking at the same retail price for used Teslas as everyone else. That said, recent offers by the automaker to allow folks to move their FSD software over to their next Tesla suggests there may be growing flexibility in this area.
Conclusion
At the end of the day, it’s impossible to say that buying a new or used EV is the best move for everyone. Traditionally, there has always been more value per dollar in the automotive world on the used vehicle side, due to relatively high rates of depreciation – again, outside of the recent supply chain crunch that turned this upside down for a brief moment in time.
Take stock of your own vehicle priorities, budget, commute, and financial realities to make the right decision for you and your family.
But you can’t answer the question ‘is new or used better?’ without acknowledging that new Tesla prices have decreased multiple times since the beginning of 2023. Collectively, these drops have added up to prices lower by at least $10,000 and sometimes tens of thousands of dollars lower than prior years in the case of the S sedan and the X SUV. It’s true those cuts came after two years of regular price increases, but the Model 3’s current starting price of just under $39,000 is very close to its effective starting price when it was launched in 2018.
All this is to say that the EV landscape is evolving rapidly with government and technology changes that have impacted buying decisions much more than for ICE cars. So it’s important to take stock of your own vehicle priorities, budget, commute, and financial realities to make the right decision for you and your family.