Back to the Future: Electric Vehicles

Planning Reflection

While electric cars might seem like the technology of the future, the truth is that they have been around since the early 1800s, long before gasoline vehicles were invented. In the late 1800s, major cities like New York and Paris had fleets of electric taxis that would chauffeur patrons around town. In fact, the first speeding ticket in the United States was given to one of these New York City electric taxi drivers for driving 12mph in an 8mph zone.[1] Since those early days, electric vehicles (EVs) have faced many of the same hurdles they do today: limited range and a lack of charging infrastructure. Today, both are changing rapidly. 

Fast forwarding through the golden age of gasoline-powered cars and the mass adoption of personal passenger vehicles, we have seen a new consideration come into focus: the environment.  Electric vehicles are an important component of broader efforts to combat climate change. In addition to the inherent benefits of zero-emission vehicles, some companies are taking it a step further by using sustainable and recycled materials as part of the manufacturing process.  While there is some truth to the concern that EVs and large-scale batteries have a material carbon footprint, the reality is that when compared with gasoline-powered cars over the vehicles’ useful life, the comparison isn’t even close.[1] 

New Tax Credits and the Inflation Reduction Act

The recent passage of the Inflation Reduction Act brought some significant changes to the federal electric vehicle tax credit, making EVs more affordable and encouraging more people to consider making the shift. Following are a few key points you may want to consider.[2]

Federal Tax Credits: 

  • When purchasing or leasing a new qualified plug-in EV or fuel cell electric vehicle (FCV), you may qualify for a non-refundable tax credit of up to $7,500.[3] This means you cannot deduct more than you owe in taxes, and any excess credit cannot be applied to future tax years. 
  • To qualify for the credit, the first consideration is the price of the vehicle, expressed as the vehicle’s manufacturer’s suggested retail price or MSRP. Keep in mind this isn’t necessarily the price you pay. For pick-up trucks, vans, and SUVs, the MSRP cannot exceed $80,000. For all other vehicles (cars, motorcycles, etc.), the MSRP cap is $55,000.
  • The Inflation Reduction Act is intended to prioritize domestic production.  With this in mind, to receive the credit, the car must be assembled in North America.
  • There are also income limitations when qualifying for the tax credit. It requires the buyer to have income below $150,000 for individuals or $300,000 for joint taxpayers in the year you take delivery of the vehicle or the year before.[4]
  • For the first time, used EVs will be eligible for federal tax credits. These vehicles qualify for a credit of up to $4,000 or 30% of the sales price, whichever is lower. The sales price must be less than $25,000, and the vehicle must be at least two years old and purchased from a dealership. Similar to the new car credit, income limitations apply. To qualify, income must not exceed $75,000 for individuals or $150,000 for joint returns.  

State Tax Credit: 

  • California residents can qualify for an additional $2,000-$4,500 rebate or a grant up to $5,000 under the Clean Vehicle Assistance Program. Similar to the Federal plan, these programs are income-based, with households required to be below $135,000 for single filers or $200,000 for joint filers.
  • The Clean Vehicle Rebate Project (CVRP) also offers rebates for the purchase or lease of qualified vehicles. You can determine if the car you want qualifies for state tax rebates using this Eligible Vehicle Tool.  

The goal of the federal and state programs is to bridge the price gap between electric vehicles and traditional gas-powered cars. These two programs offer consumers the opportunity to save thousands of dollars and take a step toward the future of transportation.  

Making the EV Leap

While federal and state tax credits can bring down the purchase price of a new EV there are other financial considerations that should be added into the decision.  

Charging: For many individuals, your home will be the primary place your car will charge. New homes are built with this capability in mind, but many older homes need to be upgraded to accommodate the heavier electrical load that comes with charging an EV.  These electrical system and panel upgrades often have additional benefits in terms of safety and the ability to integrate solar onto your house, but should still be considered as part of the financial cost of switching over to an EV.  

The next question is whether your new EV even comes with a charger. One way many companies are making new EVs appear more affordable is by forcing new buyers to buy home charging accessories separately. While this might not be a material cost compared with the price of the car, these additions can easily set you back another $500-$2,000 depending on the vehicle and if you prefer standard or rapid charging. 

Range Anxiety: One of the primary considerations when making the leap to an EV is the range of the vehicle. Similar to the quoted MPGs their gas counterparts struggle to live up to, electric vehicles might not always meet their quoted distance per charge. Geography can play an important role. For example, drivers in hilly areas should expect a slightly reduced range simply because going up hills requires more energy. Remember that range estimates are based on flat roads and ideal driving conditions.  

Weather is another factor that can significantly influence the range of your EV. It has been proven that cold weather temporarily reduces EV battery range. While some of this is due to science – cold weather slows down chemical reactions in the battery – most of it seems to be a result of using heating and defrosting. AAA tested the range effects of 20F degree weather on several popular EVs and found that temperature alone could reduce range by 10-12%, while the use of in-vehicle climate control could amplify range loss to 40%.[5] In addition to the reduced range, cold temperature also leads to longer charging times. Idaho National Labs reported that cold weather could increase charging times almost threefold.[6] 

Maintenance: Proper maintenance has always been an ongoing cost of vehicle ownership, but switching to an EV comes with significant changes. Gone are the days of routine oil & fluid changes. Electric vehicles tend to have fewer mechanical parts and as a result, many EV owners experience less frequent routine maintenance. 

One specific example is the regenerative braking systems in EVs. This uses resistance from the electric motors to slow the vehicle, capturing kinetic energy from a vehicle’s deceleration and converting it into electricity to recharge the battery. This means brake pads don’t get used as much compared with conventional gas-powered cars and brakes don’t wear out as often.

Making an Informed Decision

The choice of what car to drive is a highly personal one, and there are a lot of reasons to be excited about new electric vehicles and charging technology. The electric vehicle landscape is growing quickly as technology evolves and demand booms and the coming years will see many more EVs take to the roads, seas, and skies. In the US, electric vehicle sales have climbed by more than 40 percent per year since 2016.[7] While the future is bright, it is important to have realistic expectations about the current vehicle range, charging capability, and total cost.   

If you enjoy having the latest technology and you’re willing to pay a slight premium for that experience, or you hate paying for gas and like the idea of fighting against climate change, then the new landscape of EVs provides some enticing options. Like all major purchases, this decision requires careful consideration, and our team at North Berkeley works with our clients to fit this goal into their broader financial life. Regardless of whether you choose to make the shift now or wait for the technology to evolve further, we continue to be in an exciting time for the future of electric vehicles.


When evaluating tax credits, you should consult with your tax advisor as well as the auto dealership to confirm current programs and laws at the time of your purchase.  The above article does not constitute tax advice.

1. Electric Vehicle Myths  
2. Credits for New Clean Vehicles Purchased in 2023 or After 
3. Manufacturers and Models for New Qualified Clean Vehicles Purchased in 2023 or After 
4. Income is defined as Modified Adjusted Gross Income (MAGI).   
5. How Temperature Affects EV Range Recurrent
6. EV Performance in Cold Weather Idaho National Labratory  
7. How electric vehicles will shape the future McKinsey  

Daniel Smyth, CFP 

About Daniel Smyth, CFP®

Daniel Smyth is a Lead Advisor with North Berkeley Wealth Management. He helps clients articulate and reach their long-term financial goals.

Read more about Daniel

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This commentary on this website reflects the personal opinions, viewpoints, and analyses of the North Berkeley Wealth Management (“North Berkeley”) employees providing such comments, and should not be regarded as a description of advisory services provided by North Berkeley or performance returns of any North Berkeley client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data, or any recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. North Berkeley manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

By |2023-02-17T13:54:34-08:00January 27th, 2023|