The Fastest Growing Trends in Hybrid and Electric Vehicles

In just six years' time, the government wants half of all new vehicles sold to be electric. To make that a reality, it has introduced tax credits on electric cars, initiatives to increase the number of charging ports, and other programs to accelerate the adoption of hybrid and electric vehicles (EVs).

If you're ready to navigate some twists and turns to understand exactly what makes and models qualify for credits, you might be able to score a great EV or hybrid deal this year. Read on to learn more about other important trends in this growing sector.

1. Hybrids are racing ahead

Hybrid cars are taking a growing share of the new car market. A compromise between fully electric and old-style gas-powered cars, hybrids are proving popular. According to Edmunds, hybrids almost doubled their market share between 2022 and 2023, increasing from 4.9% to 9.7%.

What it means for your wallet: Not only can a hybrid car help you save on gas, but some models will also qualify for the government's electric vehicle tax credits. However, pay attention to higher insurance and other costs, as these may wipe out some of the benefits.

For example, Lemonade estimates a hybrid can cost 7% to 11% more to insure. The Ascent research puts the cost of the average auto insurance policy at over $3,000 a year in 2023. As such, you could pay as much as $330 more for auto insurance on a hybrid.

There are ways you can reduce car insurance costs, such as shopping around, increasing your deductible, and bundling your policies. Even so, it's important to think about the ongoing costs of running a hybrid or EV to avoid unexpected bumps in the road.

2. Tax credits are changing lanes

Tax credits on electric vehicles go some way to reducing the higher price tag. Car buyers can get up to $7,500 in credits when they purchase certain electric and hybrid vehicles. There are two important changes that came into play in January 2024:

1. You'll be able to claim the tax credit immediately. Instead of waiting until you file your next tax return, the new rules mean you can get the tax credit immediately when you buy your new car.
2. Geographical manufacturing restrictions apply. The credit is split into two $3,750 parts. Each requires that a percentage of the battery components or minerals comes from the U.S. or a country that's friendly with the U.S. The idea is to gradually reduce the EV industry's dependence on China each year.

In 2024, to claim the critical minerals portion, 50% of the minerals used must be extracted or processed in the U.S. or a U.S.-friendly country. Similarly, 60% of the battery components need to be manufactured or assembled in North America to qualify for the second portion of the credit. Those percentages will increase in 2025 and beyond.

What it means for your wallet: If you're hoping to benefit from tax credits, make sure you understand which specific makes and models might qualify. The Department of Energy's tool will help here, as can the car dealership.

The car seller will need to give you and the IRS a "time of sale" report, which includes information about the tax credit and battery capacity. There are also income thresholds and price limitations. Try not to let the red tape put you off. It is worth jumping through a few hoops to get $7,500 back on a new car.

3. Electric vehicle sales brake slightly

Don't get me wrong, sales of electric cars have stormed ahead in recent years. In 2015, EVs only accounted for 0.3% of cars sold, according to Edmunds. Last year, that figure was 6.9%, and the car shopping experts estimate it will increase to 8% in 2024. Nonetheless, demand is slowing, in part because consumers worry about prices, the availability of charging stations, and performance issues in colder weather.

What it means for your wallet: Slowing sales could translate into lower EV prices. Indeed, Cox Automotive/Kelley Blue Book analysis showed that the average price of a new electric vehicle in January 2024 was $55,353 -- almost 11% lower than the year before. The auto company predicts we'll see "more incentives, more discounts, more advertising, and greater sales efforts."

If paying upward of $50,000 for an EV is too steep for your budget, check out used EV options. A study by iSeeCars showed that used EV prices dropped by over 33% last year to an average of around $35,000. Some are eligible for up to $4,000 in tax credits, too.

Keep your eyes on the road

There are a lot of decisions to make when buying a new car, including how you might finance it and how you'll power it. If you're going for an electric vehicle or hybrid, take time to research the pros and cons. A fully electric vehicle could significantly reduce your emissions and the tax credits are sizable. But it could backfire if you don't understand which cars qualify or what changes you'll need to make to keep it charged.