Sales of electric vehicles (EVs) in the United States rose by two-thirds in 2022, comprising 5.8 percent of all new vehicles sold. This represents a significant increase from the 3.2 percent market share in 2021. After a decade when most plug-in hybrid vehicles (PHEVs) available for sale were sedans and hatchbacks, automakers introduced new electrified truck and SUV models last year. The list of body styles coming in 2023 and beyond is even more varied, and the number of brands introducing their first EV model is also growing.
Changing Federal Income Tax Credit Rules for EVs
These new EV models are arriving at a critical time for car shoppers. The federal government dramatically changed how an EV qualifies for the maximum $7,500 tax credit in late 2022. More new rules kicked in at the start of 2023.
Some EVs previously ineligible for the credit became eligible again after the law, called the Inflation Reduction Act (IRA), removed a clause that phased out the credit once a manufacturer reached 200,000 total EV sales. Other previously eligible vehicles no longer qualify because the IRA created new rules requiring manufacturers to produce the EV in North America. The IRA also sets income and price limits on qualifying buyers and vehicles, excluding higher earners and expensive EVs from getting any credits.
Moving forward, large electric cars (vans, SUVs, and pickup trucks) will only qualify for a credit if they cost less than $80,000. Other vehicle types, like hatchbacks and sedans, only qualify if they cost less than $55,000. These limits are potentially crucial for the EV market as we advance. A McKinsey survey recently found that higher-end EVs are growing in popularity, and industry observers expect electric models to comprise at least 50 percent of the luxury segment by 2030.
In January 2023, the Department of Energy (DOE) announced a long-term plan to decarbonize transportation in the U.S. The DOE found that converting light-duty vehicles to electric power is the most significant long-term opportunity to achieve this net-zero economy in 2050. To promote EV purchases now and in the coming years, the IRA added a new $4,000 EV tax credit for used vehicles that sell for under $25,000.
Consumers interested in determining if a vehicle they're considering qualifies for a credit under the new rules can look up the VIN at the DOE's website. You can keep up to date on the rules on the IRS website. The government agency has said it will release further clarifications to the IRA rules in March 2023.
Expanding EV Charging Infrastructure
Putting more EVs in driveways will require a vastly greater number of public and private charging stations. The federal government is taking the lead in building this infrastructure. In November 2021, the Bipartisan Infrastructure Law allocated $5 billion for states to develop their charging infrastructure strategically. The BIL also provided $2.5 billion for a competitive grant program for more publicly accessible EV chargers in designated alternative fuel corridors.
In addition to this public money, private companies are also expanding their charging networks. Luxury automakers are investing in networks that provide benefits for owners of their vehicles, like priority scheduling for charging reservations or connectors that only work with their own EVs. Also, the network operators that run charging stations are continuously announcing expansions and additional installations. For 2023, some of the areas targeted by network operators for expanded EV charging infrastructure include Detroit, Dallas, Nashville, and Orlando.
New charging stations are also rolling out with improved payment options and larger screens for transactions and advertisements. Some of these new stations are also rated for higher power output (up to 350 kW), resulting in shorter charge times for EVs that can handle that level of energy delivery.
Home Charging Station Trends
Public EV charging is essential, but most EV charging happens at home. With the BIL, the federal government is once again making it easier for people to install chargers at home or work. A previous federal tax credit for home chargers expired at the end of 2021, but the Bipartisan Infrastructure Law introduced a new credit for individuals that covers 30 percent of the cost of the equipment (up to $1,000 per unit). Commercial businesses can install chargers and get a credit worth six percent of the cost (up to $100,000 per unit).
The BIL will also pay for a new technology that will be important for EVs in the future: bidirectional (i.e., two-way) chargers. These chargers can use energy stored in the car's battery to power a home during an outage or when the homeowner can take advantage of changing electricity costs at different times of the day.
New technology introduced in 2022 even allows homeowners to install chargers that don't require an upgrade to the electrical panel, making home chargers less expensive to install. Home chargers are also getting more technologically advanced. Some units come with apps that connect to your home network and control all connected devices, including your car, in one place.
Many sources can generate electricity. EV drivers who want to power their cars with sunlight can take advantage of an extension of a residential solar photovoltaic system tax credit that Congress passed in August 2022. Previously, homeowners could get a 26 percent credit, but for the next decade, the government raised the credit to 30 percent. Owners can apply the credit to the cost of the solar panels, labor costs, and fees and energy storage devices (i.e., batteries) that have a capacity rating of 3 kilowatt-hours (kWh) or greater.
Battery Trends
Recent EV progress would not be possible without advances in lithium-ion battery technology, and that work continues. In early 2023, the DOE estimated that the cost of a lithium-ion battery pack used in an EV declined 89 percent between 2008 and 2022 (using 2022 constant dollars). In 2008, before the first mass-market EVs were available, the cost was $1,355 per kWh. In 2022, the DOE estimated it at $153/kWh.
That cost reduction means EVs can provide more range for the same price. A decade ago, EVs with a range of just 100 miles was the norm. Today, most EVs offer more than twice that. Higher power ratings on the battery packs (and the charging stations, as mentioned above) mean faster charging times, with DC fast charging adding roughly 80 percent of the total capacity in 20-30 minutes. While that rule of thumb has remained constant over the years, bigger packs mean more miles per minute of charging.
One potential "next big thing" for EVs is solid-state batteries. As the name implies, solid-state batteries do not contain any liquid and have a lower risk of catching fire. They can also hold up to three times as much energy and work better in stressful environments than today's EV batteries. The problem is that these batteries are not yet ready for mass production. While groups like NASA and some automakers are developing solid-state batteries for automotive use, they will not be ready in 2023.
A similar long-term time scale is useful when considering other next-generation battery technologies. Future EVs could have batteries used as part of the vehicle's structure, making them lighter overall while still providing long ranges. Batteries with new chemistries—using a silicon anode, for example, or silicon made from sand—could also usher in dramatic changes sometime before the end of the decade.
Nuclear Fusion Energy Breakthrough
Looking much further ahead, switching our transportation options to electric power opens up what one might have previously thought unbelievable. Nuclear fusion has yet to become a working technology. Still, in late 2022, the DOE said scientists managed to, for the first time, get more energy out of the fusion process than they had to put in. Whenever we are ultimately able to use fusion to power the grid, our cars will be ready for this potentially limitless power source.
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