Sun Tzu & The Art Of The EV Tax Credit: How To Not Get Ripped Off By Dealers (Part 1)

I know it’s not wise to count your chickens before they hatch, especially when you’re depending on the US Congress for something. So, I may be getting ahead of myself by discussing upcoming EV tax credits. As currently written, they’d give GM and Tesla buyers access to the tax credits again, but give US-made and union-made cars the most credits at $12,500. Plus, it’s supposed to be a refundable and transferable credit, so you could get the (up to) $12,500 off at point-of-sale when you buy a new EV.

Like everything else in the Build Back Better Act, it’s hung up right now as Democrats try to find a way to make Senators Joe Manchin and Kyrsten Sinema happy enough to get their votes. On top of that, foreign governments warn the United States that favoring union-made or US-made vehicles would violate international trade commitments, so Congress may revise the credits to give the same amount to every buyer.

Whatever they choose to do, it seems very likely that the EV tax credits in the final law will be refundable and transferable, but there’s one last obstacle between you and saving up to $12,500 on an EV: the “stealership.”

Dealers Are Salivating Thinking About Your Tax Credit About To Give You A Great Deal!

If you’ve seen the 1996 movie Matilda, you know who Harry Wormwood is. He’s a caricature of the American auto dealer. They’re always out to make an extra buck while giving you a little less for it. They’ll conceal facts, lie to you, sell thousands of dollars of next-to-worthless add-ons, switch the paperwork out, and even commit forgery if that’s what it takes. The only people who actually like going to auto dealers are people who just aren’t paying any attention or don’t care how much they’re spending.

But the dealers are going to prove me “wrong” about all this once the tax credits go into effect.

Go to any dealer with EVs, and you’ll find AMAZING prices on new cars with warranties. I did the dorky rainbow thing because the prices will really look that gosh-darned amazing. If you aren’t already gay, you’ll at least be gay in a 1920s sense (back when it just meant “really happy”) after seeing the prices. Did I mention that the prices will be amazing?

“See, Jennifer just hates normal car companies that work with dealers,” you’ll say to yourself. “She works for that online rag CleanTechnica where everyone owns Tesla stock, so she’s just talking crap about Tesla’s competitors to pump the stock. After all, look at these amazing prices! How stupid does Jennifer think we are?” (For the record, I don’t own any Tesla stonks and I’m personally not a Tesla fan these days, but that’s another story)

Take this Volkswagen ID.4 for example:

A screenshot from one of my local Volkswagen dealers. Fair use, commentary.

After the tax credits (assuming VW buyers end up getting the full $12,500), you’ll see the price at many dealers magically go down to:

$38,023 Sale Price!! Below MSRP! Below Invoice! $8000 Off No Haggle Price!

“Sweet Baby Cheese and Crackers! That’s amazing! They’re giving these cars away for less than they paid!” you’ll say. “Where do I sign?? Just shut up and take my money!”

The Obvious Scam

It doesn’t take a rocket surgeon to see the scam on the surface here, but many customers will do exactly as above and jump on the “great” deal. With a $12,500 discount from the government, the dealer is only giving customers $8,000 off, and pocketing the other $4,500. It’s going to be a great Christmas for many dealers and their salesmen.

So, if you’re smart at all, you’ll tell them that you want the MSRP price ($45,425 in the website screenshot above) minus the EV tax credit ($12,500 if they cave to international pressure and offer that to every automaker’s cars). You’d end up with an even better deal, paying $32,925.

The dealer will try to argue with you a little and see if they can convince you that you’re getting a great discount when they steal part of your tax credit, but they won’t fight you too hard on this if you tell them that you know that the whole EV tax credit is supposed to come off the price of the car. So this is where you sign the papers and get your great deal, right?

This Would Still Be A Rip-Off, Though

MSRP minus incentives (the EV tax credit is an incentive) isn’t a good formula for a fair price on a car. Sure, you’ll get the entire benefit of your tax credit, but you really shouldn’t be paying MSRP for a car to begin with. That’s the price where negotiations generally start, but you should get at least something off of that.

Before you can figure out what you should pay, you need to know your enemy and what their position on the car is to begin with. As Sun Tzu said, “If you know the enemy and know yourself, you need not fear the result of a hundred battles…If you know neither the enemy nor yourself, you will succumb in every battle.”

The person who paid “$8,000 off” didn’t know what the dealer paid for the car, nor did they know that they were bringing a $12,500 tax credit with them. They didn’t know the enemy or themselves, and they lose big.

The smarter person in the last section knows themselves (and the $12,500 they’re owed here), but doesn’t know their enemy, and ends up paying MSRP.

The smartest buyer knows both themselves (that they’re owed $12,500 off), but also does the research to know their enemy (by figuring out what the dealer paid for the car), so that they can arrive at a fair final price. To do that, you’ll need to cruise to a site like Edmunds and figure out what the dealer’s invoice price for the vehicle is. In theory, this is what they paid Volkswagen for the ID.4.

In this case, Edmunds says the invoice price was $43,696, but that’s not the whole story. There’s also a hidden profit margin called holdback, which dealers and manufacturers use to conceal the true price of the car. In the case of Volkswagen, Edmunds says the holdback is 2% of the MSRP, or $910.50. So, the dealer cost is actually about $42,785.

To be fair, the dealer probably paid something to have the car hauled to their lot from the factory, and they also may have paid for options if the car has any, so be sure to keep those in mind when you figure out what the dealer’s actual cost is.

Also, keep in mind that if there are any manufacturer, state, or local incentives, those come off of the dealer’s cost just like the EV tax credit.

In Part 2, I’m going to further explore the specific numbers for this example car so you can see how it works out in the end, give you some more tips to avoid common dealer scams, and ask whether this is a game that we want to play at all.

Featured image: A used car lot selling Nissan LEAFs. Photo by Jennifer Sensiba.