“At least in the first half of 2023, the number of eligible vehicles under the $25,000 price point cutoff was pretty small,” Case said. “But we’ve seen that number of vehicles that will qualify under that $25,000 cutoff expand dramatically over the past 18 months.”
Given the benefits of being able to sell used EVs and pocket the value of the tax credits directly, “I’m surprised that more dealers aren’t as active” in registering for the IRS payment system, he said. Recurrent keeps a list of car dealers that it knows have registered for the program, and while it’s not comprehensive — the company may be missing many dealers that have signed up — the 40-odd dealers on the list aren’t as many as Case would expect.
Glenn agreed that “the biggest challenge right now — and I’m hoping it’s a short-term challenge — is that not a lot of dealers are registered.”
That’s a problem, and not only for prospective EV buyers with lower incomes. Getting a discount on the up-front price of a new vehicle is a much more persuasive sales pitch than promising the buyer that they’ll be able to get a credit on their taxes a year or more from when they buy it.
The list of dealers that don’t currently offer tax credits include some major online auto retailers such as Carmax, which in an April blog post noted that it is “not currently offering the option to transfer an EV tax credit as a down payment,” and Carvana, which states on its web page about used EV tax credits that this option for car buyers is “coming soon.”
There are reasons why auto dealers might not be moving quickly to sign up for the IRS platform, Glenn noted.
Independent dealers that haven’t focused on selling EVs might not see the value of putting in the work, for example. Processing a tax-credit transaction that will pass IRS muster isn’t without its rules and regulations. The tax credit can only be claimed the first time a used EV is sold, for example. A buyer can’t claim it more than once every three years. And individuals earning more than $75,000 per year (or married couples filing jointly earning more than $150,000 per year) aren’t eligible to receive it. Sorting that all out may seem like more trouble than it’s worth to some dealers.
And then there’s the complicated relationship that auto dealers have with EVs. Many mainstream dealers aren’t even offering them, according to surveys from the Sierra Club. Some balk at being asked to sell a class of vehicle that isn’t popular in their region, or don’t want to bear the extra cost of installing and powering charging equipment needed to keep them running.
And media reports from auto dealer trade shows have highlighted skepticism and outright opposition toward EVs from dealers, a group that leans heavily Republican in terms of political lobbying and who have been fighting efforts by Tesla and other EV manufacturers to sell their vehicles directly to consumers.
But there are some auto dealers specializing in EVs that don’t fit that mold. Alex Lawrence, CEO of EV Auto, is one of them. In the past four and a half years, the serial entrepreneur has built a growing business in his home state of Utah buying and selling used Teslas and other EVs. While he didn’t disclose how many EVs his business sells or how much money it’s making, he did say EV Auto is “seeing double-digit percentage growth every month.”
Being able to offer the $4,000 used EV tax credit as a discount to the sales price has only accelerated that growth, he said. “We’ve seen the volume of sales for those vehicles go up dramatically as a result.”
Even person-to-person sales can take advantage of the up-front tax credit, said Andrew Crowell, CEO of KeySavvy. The startup specializes in aiding the transaction of “private-party” vehicle sales — a category that makes up just under half of the used-car market — and “over half” of its transactions are used EVs.
KeySavvy’s role is to manage the transfer of funds from the buyer to the seller and transfer of the title from the seller to the buyer. As a licensed car dealer, “we purchase the vehicle from the seller, and sell it to the buyer at the exact same time,” Crowell explained.
That allows KeySavvy to provide financing companies the guarantees they need to be able to offer loans for private-party transactions, he said. It also allows his company to access the IRS platform to apply tax credits to lower the up-front cost of each used EV it transacts.
That’s a powerful combination, he said, since applying the $4,000 tax credit to a buyer’s down payment reduces the “loan-to-value ratio” that lenders consider when assessing the risk of making a loan. That’s an important metric, since it determines how much money the lender might have left on their books to pay off if the borrower defaults on the loan and the lender has to repossess and resell it.
Finding ways to value a novel technology
That brings up a major unknown for lenders getting into the used EV business: Just how much is a used EV worth?
The automotive industry has developed sophisticated methods and metrics to assess the “residual value” of used cars. But EVs are not only new enough to lack much of the data that these traditional methods rely on, but also highly dependent on a data point completely lacking from internal combustion engines — the health of the battery, an EV’s most expensive component.
Recurrent is one of a number of companies that’s been analyzing and standardizing methods for assessing used EV battery health, which it now provides to well-known valuation providers such as Black Book as well as to financing companies like EV Life.
Two used EVs with identical mileage on them “can have real differences in conditions of the batteries of those two vehicles at the end,” depending on whether they used fast-charging or slow-charging more often, whether they were driven to near-depletion more often, or whether they were operating in mild or extreme climates, Case said. “Knowing exactly what those cars will sell for and maximizing that is really important — and that’s something that EV Life and other folks are starting to take into account when determining their loan terms.”
Glenn agreed that battery health is one of the more important data points to build into EV Life’s valuation models. “The value of that vehicle, and the risk factors associated with that vehicle, are different from what a traditional ICE lender would see looking at 100 years of historical data.”
At the same time, there are important benefits of driving an EV that need to be taken into account as well, he said — such as the fact that they’re often cheaper to own over their lifetime than gasoline-fueled vehicles due to lower fueling and maintenance costs. EV life factors in the fuel savings of owning an EV, for example. “We can’t qualify it as income, but we can classify it in terms of the customers’ ability to repay the loan,” he said.
Translating these long-term values into lower prices and credit risk assessments for buyers will play an important role in making EVs accessible to a broader class of customers than the wealthier white men who’ve been the predominant EV-buying demographic to date.
But it’s also important to make EVs more attractive to U.S. car buyers. Price, range and access to fast and reliable charging remain the top sticking points for U.S. consumers looking at buying an EV, according to a recent Boston Consulting Group survey.
Companies working to make buying used EVs as simple as buying used cars don’t have control over thecharging part of that equation — but they can find ways to make the EVs that people want more affordable. As Glenn put it, “when I think about financing used EVs, it’s essential to give the customer the knowledge that they’re getting a good deal.”
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