- 45W Commercial Fleet Inflation Reduction Act, Subsidies for Electric Vehicle Leasing
- Federal credit of up to $7,500 applies to electric vehicle leases regardless of price or manufacturer
- That fueled a rental boom that undermined some of the original purposes of the IRA.
If you’re in the market for a new luxury electric vehicle or a foreign-made electric vehicle, the payment math can point to some very attractive lease terms, even when compared to reasonably financed purchase terms.
Why? Thanks to the government—and the U.S. Treasury Department, for choosing to interpret and implement the benefits of the Inflation Reduction Act in this way. Some lawmakers argue not comply with the original purpose of the law.
Funds sweetening consumer leases come from Clean Commercial Vehicle Credit or IRS 45Woriginally intended to allow commercial fleet operators to receive subsidies for adopting EVs, its final language was tweaked to allow captive financing partners of automakers Apply credit to leased EV for consumers.
Virtually any EV can qualify for such a credit toward leasing, while EV purchase credits apply to only a small subset of EVs. So it’s no surprise that leasing is surging relative to sales as a result—and that the EV segment is pulling more of the weight of this surge than non-EVs.
TransUnion EV Lease Rates by Year
Federal funds partly support surge in electric vehicle leasing
In a report released earlier this month by credit giant TransUnion, electric vehicle leasing helped push total leasing volume from 539,000 in Q1 2023 to 714,000 in Q3 2024. That’s approaching the leasing levels seen in 2020, when interest rates were much lower.
The number of low-cost electric vehicles on the market also played a role, according to Merchant, as did the advent of leasing incentives — in the form of federal tax credits that led to Subsidized electric car rental effective from January 2023.
The meaning of IRS 45W in the context of passenger vehicles is indirect, Automakers could count on up to $7,500 for each EV they lease—regardless of where the vehicle is assembled, the origin of the battery pack or materials, or the list price of the vehicle, and regardless of the renter’s household income. There is also unlimited credits An automaker—also known as a leasing company—could claim compensation for the lease amount or for the number of federally subsidized electric vehicle leases that a customer could commit to.
That makes renting easier. Preferred mode of transportation for luxury cars and imported electric cars—for the IRS 30D, the Clean Vehicle Credit applies to the purchase of electric or plug-in hybrid vehicles, emphasizing affordable, U.S.-made electric vehicles built with the help of battery materials from North America or trading partners. To claim the electric vehicle tax credit of up to $7,500, buyers must meet household income requirements and the vehicle must meet a set of criteria for U.S. assembly, electric vehicle battery supply, and a price ceiling of $55,000 or $80,000 depending on the vehicle.
Ford Mustang Mach-E GT 2024
For electric vehicles, leasing trumps financing
“Auto leasing activity has certainly picked up in recent quarters, but nowhere is this more evident than in the electric vehicle market, where leasing has now surpassed financing as the preferred option for consumers when purchasing a new electric vehicle,” said Satyan Merchant, senior vice president of auto and mortgages at TransUnion.
TransUnion’s observations are the latest in a broad suite of industry data that shows the dynamics around leasing are changing, with EV at the center of it. Last year, credit giant Experian recorded a Market shifts to EV leasingwith a noticeable change starting around April 2023—just a few months later.
That in itself leads to something of a paradox. The rental boom, fueled by the Disinflation Act, is arguably alleviates the expected driving forces for the EV supply chain industry and build more electric vehicles in America—right before the IRA buildout really starts to pay off with more electric vehicles being made in America and sourced in America.
UAW-Made Sticker on 2022 Chevy Bolt EV
Is Biden’s electric vehicle policy backfiring?
“If consumers choose to take advantage of the tax credit primarily through Section 45W leasing, automakers will not face financial pressure to source battery components from the United States, use recycled batteries, or source critical minerals from the United States or its free trade agreement partners,” the Peterson Institute for International Economics summarized in a May 2023 report. IRA Working Paperspointed out that US imports of electric vehicles from the EU and South Korea have increased since the IRA. “Therefore, Section 45W reduces the incentive to create a separate supply chain for backup electric vehicle battery inputs outside of China.”
However, this policy has led to Greater rental popularity for low-cost US-made electric vehiclesas well. Last year Experian noted that Tesla Model 3 is one of the ten most rented cars model in the United States
Tesla Model 3 (European market refresh)
Last year, Green Car Reports contacted most automaker finance companies and the IRS about the frequency of 45W claims in EV lease financing, and the captive finance companies responded that they chose to keep that information private. We contacted the IRS and Treasury again for an update on how many 45W claims have occurred and what proportion of them are estimated to involve passenger vehicle leases versus commercial fleets.
The Treasury confirmed to Green Car Reports on Friday that it did not yet have top-level data for 2023 regarding the amount of 45W claims, the number of vehicles covered or the end use of those vehicles claimed.
Meanwhile, the consumer electric vehicle leasing market will likely continue to be subsidized with federal money until Congress steps in and sets some ground rules. That means Subsidized electric vehicle leasing will continue until next year’s session at the earliest. As with many other things about Current EV policy and election seasoneverything can change
