Tesla, Tesla, Tesla, Rivian, etc… Electric cars seem to be everywhere now. Many families are considering electric cars (EVs) because they are better for the planet and owners are sick of paying high gas prices. They might cost more upfront than regular cars, but they end up being cheaper overall.
First, you need to decide if an EV is right for you and your family. If you have a longer than average commute, no way to charge the car at home, or not many charging stations nearby, an EV might not be the best option.
It can also be a budget issue, but the average cost of an EV has gone down from about $65,000 to $58,000 since August 2022. The popular Tesla Model Y base model, for example, costs $47,500.
| Category | Tesla Model Y | Toyota Highlander Hybrid |
| Mileage Range | Up to 125 MPGe5 combined | Up to 36 mpg combined (EPA) |
| Lifetime Maintenance | Lower due to fewer moving parts and less frequent servicing | Higher due to more complex hybrid system and maintenance needs |
| First Year Depreciation | Low depreciation due to high demand and limited supply (~5%) | Moderate depreciation because of regular market demand (~4%) |
The US government is trying to tackle climate change and offers tax credits up to $7,500 for people who buy EVs and meet certain requirements. You need to make less than $300,000 for married filing jointly to get the credit. You can check if you qualify for this tax credit on the IRS1 website. As your MAGI2 (Modified Adjusted Gross Income) needs to meet the requirements. California also gives a $2,000 tax credit for buying an EV. Because of the new rules for tax credit, companies like Tesla have lowered their prices to meet the requirements. For instance, the Tesla Model Y, which is a popular EV, now costs less to qualify for the tax credit.
| SINGLE | Modified AGI over $150,000 | Don’t Qualify for the EV Credit |
| MARRIED (Filing Jointly) | Modified AGI over $300,000 | Don’t Qualify for the EV Credit |
| HEAD of HOUSEHOLD | Modified AGI over $225,000 | Don’t Qualify for the EV Credit |
| All Other Filers | Modified AGI over $150,000 | Don’t Qualify for the EV Credit |
If an EV is right for you, should you buy or lease an EV? If you can get the tax credit, it’s better to buy because EVs don’t lose their value as quickly as regular cars. They also need less maintenance since they can get new features through software updates. But if you don’t qualify for the tax credit, leasing might be a good choice. Just remember that leasing4 doesn’t guarantee the lessor will pass on the tax credit. Leasing can be easier if you like to change cars every three to five years and don’t want to worry about maintenance.
You will also want to think about installing a charger at your home for the EV. This way, you can save money by charging the car when electricity costs less. PG&E3 also gives incentives up to $2,500 to help you buy and install an EV charger. Using a deferred compensation plan could be a way to lower your MAGI to qualify for the tax credit.
The wrong reason to buy an EV is because everyone else has one. But, if it makes sense for your family, it’s in your budget, you will save money in the long-run and do the planet some good.
Citations:
“Credits for New Clean Vehicles Purchased in 2023 or After.” Internal Revenue Service, www.irs.gov/credits-deductions/credits-for-new-clean-vehicles-purchased-in-2023-or-after. Accessed 6 June 2023.1
“Modified Adjusted Gross Income (MAGI) – Glossary.” Glossary | HealthCare.Gov, www.healthcare.gov/glossary/modified-adjusted-gross-income-magi/#:~:text=MAGI%20is%20adjusted%20gross%20income,Supplemental%20Security%20Income%20(SSI). Accessed 6 June 2023.2
“Electric Vehicles.” Plug In Electric Vehicles (EV) Overview, www.pge.com/en_US/residential/solar-and-vehicles/options/clean-vehicles/electric/electric.page. Accessed 6 June 2023.3
Krisher, Tom. “The Easiest Way to Get a $7,500 Tax Credit for an Electric Vehicle? Consider Leasing.” AP NEWS, 30 May 2023, apnews.com/article/electric-vehicle-lease-buy-cheaper-tax-credit-6cfe4101ad04bd993c634d860ec5598b.4
“Find and Compare Cars.” Www.Fueleconomy.Gov – the Official Government Source for Fuel Economy Information, www.fueleconomy.gov/feg/noframes/43406.shtml. Accessed 20 June 2023.5
“Tesla.” Model Y, www.tesla.com/modely. Accessed 20 June 2023.
“2023 Toyota Highlander Hybrid.” New Cars, Trucks, SUVs & Hybrids, www.toyota.com/highlanderhybrid/. Accessed 20 June 2023.
Kelley Blue Book, www.kbb.com/compare-cars/results/?vehicleids=456737%7C464619%7C463728%7C463650. Accessed 20 June 2023.
