The Compact SUV EV Search: Four Years Later

On this day four years ago, my search for an electric compact SUV ended with the purchase of a gasoline-powered car.  During the time of my search, there was only one compact SUV EV available. It was prohibitively expensive and lacked features I consider essential. Two years later, more affordable options had come to market, but nothing offered the basic features I want: all-wheel drive, a surround-view camera, an openable moonroof, and an EPA range of at least 235 miles. Now that two more years have gone by, it's time to take a look at the compact SUV EV landscape again. 

It's still desolate.

The good news is that we've finally reached a state where one vehicle--exactly one (out of the nearly 30 compact SUV EVs available)--offers the basic features I want. It's the Nissan Ariya. Unfortunately, at more than 50% more expensive than its gasoline-powered equivalent (a premium of close to $20,000), it's too much money. 

Two other cars almost fulfill my basic feature requirements, though not my affordability criterion. The Mercedes EQB 300 has AWD, the moonroof, and the surround-view camera, but its EPA range, per the car's window sticker, is only 232 miles. The range is surprising, because the range for the 2022 model at fueleconomy.gov is 243 miles. Why the 2023 model has a lesser range than the 2022 model, I don't know, but the number on the sticker is the number on the sticker. (Fueleconomy.gov has no information for the 2023 model.)

The other nearly feature-complete car is the AWD version of the 2024 Volvo XC40 Recharge. The 2023 model already checked all the boxes except the required range, but Volvo recently announced that the 2024 model's range would be around 254 miles. That's encouraging, but it's currently a car on paper only. Pricing hasn't been announced, and it can't yet be ordered.

Even when it exists, it's unlikely to change things for me. Assuming the 2024 Volvo XC40 Recharge is priced similarly to the 2023 version, both it and the Mercedes EQB 300 will have MSRPs pushing or exceeding sixty grand. That's even more than the Nissan Ariya. 

None of these cars qualifies for the $7500 federal tax credit (which I recently realized is less attainable than the EV media generally acknowledges).

Four years after I threw up my hands in frustration, abandoned the idea of buying an EV, and purchased a gas-burning automobile instead, I'll have gone from having zero EVs to choose from to having one. Pricing remains firmly at the luxury level. The acceptably-equipped and reasonably-priced compact SUV EV I long for continues to exist only in my imagination.

The slow progress of the last four years is disheartening. I've decided to significantly reduce how closely I monitor EV developments. For years, I've followed the field closely, eagerly reading articles about new and coming vehicles. I'm going to stop doing that. From now on, I'll just check every few months to see if anything has become available that offers the features I care about at a price I consider reasonable. There's a school of thought that the IRA's battery subsidy provisions will lead to a radical reduction in EV pricing. We'll see.

About that $7,500 Federal EV Tax Credit...

I read a lot of articles about EVs (electric vehicles). The writers of these articles commonly assume that if a car  qualifies for the full $7,500 federal tax credit, the effective purchase price drops by that amount. A recent post by Inside EVs is typical:

The 2023 Volkswagen ID.4 is eligible for the full $7,500 federal tax credit. ... The 62-kWh battery version starts at an MSRP of $38,995 (+$1,295) DST, which effectively means $32,790. The 82-kWh battery version starts at an MSRP of $43,995 and is effectively priced at $37,790, while the AWD versions are $4,000 more expensive (effectively from $41,590).

Notice how the "effective" prices are $7,500 less than the MSRP plus the DST (destination charge). This is terribly misleading. To get the full $7,500, you have to owe at least $7,500 in federal income tax for the year you buy the car. If you don't, you get less than $7,500. The less you make, the less you get.

I used the SmartAsset Federal Income Tax Calculator to create a quick-and-dirty mapping from income to federal tax liability (and hence EV tax credit). These data are for a two-person married household taking the standard deduction and making no 401(k) or IRA contributions: 

You can see that for taxpayers fitting this profile and making under about $95,000, the $7,500 EV tax credit is a myth. For a couple making $55,000, the credit is less than half the full amount. For a couple getting by on $25,000, there's no tax credit at all.

$95,000 is higher than the median household income in 2021 for every state (as well as the District of Columbia) except Maryland. (The source for this appears to be the US Census Bureau, but I found the data at Statista. Credit Karma shows identical numbers.) I'm comparing apples and oranges a little by using a two-person married household for the $95,000 and a household of any type and size for the median incomes, but these are the values that are easy to find. For a broad-stroke picture, I think they suffice. If you have better statistics, please let me know.

The broad-stroke picture is that in every state except Maryland, the majority of two-person households would probably fail to qualify for the full $7,500 federal EV tax credit. Some articles on EVs mention that the full credit is available only to those who owe at least that much in federal income tax, but they generally make it sound like an edge case. The data above suggest that failing to qualify for the full credit is the rule, not the exception.

For completeness's sake, I'll note that the tax credit goes away for high-income taxpayers. For a married couple filing jointly, the credit vanishes when the couple's modified adjust gross income hits $300,000.