EV Financing vs. Buying: Financial & Tax Implications for Investors

Electric vehicles are an exciting commodity, experiencing rapid and consistent growth. The technology is constantly proving itself to be the next evolution in the auto industry. Government incentives and consumer shifts toward more sustainable buying practices help its impressive trajectory.

Global projections show EV sales surpassing 30 million units annually within the decade. US markets are expected to play a crucial role in this trend, making today a critical time for investors to decide whether to buy into related industries.

Those wanting to ride the industry waves must know the mindsets and driving forces behind auto manufacturers, consumers, and government policies. Understanding these aspects is crucial for making informed investment decisions.

EV Financing vs. Buying: Key Differences

Both financing and buying get the consumer behind the wheel of an EV. However, each method has different implications for the vehicle’s depreciation and cost of ownership. They are also differently handled when it comes to government or manufacturer benefits to the consumer.

Definition of EV Financing vs. Buying

Financing involves using an auto loan or other contract to access the vehicle. This method has the advantage of spreading the cost across a future period, allowing consumers to “own” an EV without slowly saving up to buy the asset outright.

The primary downside of an auto loan is interest payments, which can greatly increase the expected cost of an EV. Consumers’ income sources may fluctuate, causing them to miss payments and incur late fees or additional interest. Additionally, financed vehicles are not truly owned by the consumer until they are paid off.

Another avenue for financing is car leasing, which allows consumers to rent a vehicle for a period. Typically, monthly lease payments are cheaper than traditional car payments. Many contracts also include maintenance packages, removing confusing entry barriers to EV ownership and convincing fence-sitters to make the switch.

The most significant negative to leasing is that the leaser does not gain ownership of the EV. The leasing agency maintains ownership regardless of how long or how much the consumer has paid into its usage.

Buying an EV outright immediately transfers ownership. The consumer isn’t on the hook for interest payments or punished with late fees. However, owners are entirely responsible for the upkeep of their vehicles and maintaining their value.

EVs tend to depreciate more rapidly than traditional gasoline vehicles. This varying depreciation stems from EVs’ battery technology and federal incentives affecting prices. So, consumers who expect to resell their EVs must keep this in mind when deciding between leasing and buying.

Consumer Behavior Trends

The 2020s have marked the largest increase rate of EVs on roadways. As years pass, the public gains a better understanding and trust in the technology, and the initially high upfront costs steadily decrease. The most influential factors to this growth include:

Government and Manufacturer Incentives

Automakers pushing the product offer attractive financing programs. Prominent companies like Tesla, Rivian, Lucid, and Ford aggressively promote financing options that frequently beat traditional creditors.

Various federal benefits are also available for EV owners. These are typically used to propel the EV industry in the hope of making the models mainstream and reducing the US carbon footprint. The most prominent incentives are reserved for those purchasing new models, leading many consumers to stray from used EVs.

Improved Selection

EVs are expanding into many driving niches that once hindered their sales. Manufacturers cover every auto type, including working trucks, sports cars, and adventure vehicles. This means that EVs aren’t only for hardcore environmentalists. The technology can accommodate various lifestyles without sacrificing usability and convenience.

Technology Forward

Gadgets and gizmos in cars aren’t a gimmick anymore. Console tablets, built-in computers, windshield AI, and countless other technologies are improving the owner experience in terms of maintenance and drivability.

EVs are early adopters of the most revolutionary technologies. Their more powerful batteries and forward-thinking development teams strengthen their mass market appeal and draw in a new generation of tech-savvy drivers.

Overall, the combination of reduced pricing, accessible financing, and increased model diversity has caused EV popularity to explode in the past two decades.

Financial Considerations for Consumers & Investors

Understanding the hidden financial aspects of EV ownership is crucial to interested consumers and investors gauging the industry’s future. Several factors, such as depreciation rates, leasing trends, and technological innovation, will heavily impact the EV sector.

Depreciation and Resale Value of EVs

One of the biggest worries for new EV owners is the rapid depreciation these cars experience. Some estimates report that EVs decrease in value by 50 percent more than traditional cars in the first five years off the lot.

Decreasing Battery Range

The first reason for the depreciation can be considered the EV industry’s “boogeyman.” Battery life. Electric vehicles currently use lithium-ion cells, which start deteriorating right after manufacturing. These cells lose their ability to retain energy as they’re put through charge cycles, meaning that the EV’s maximum range slowly decreases.

These qualities mean that used or older models are less attractive to buyers as they automatically have a reduced range compared to new ones.

There are a few alternatives to lithium-ion cells already under testing and minor use. Solid-state batteries are at the forefront of these considerations. Toyota, a leader in solid-state battery adoption, lauds the technology as a step up in batteries’ charging speeds, sustainability, safety, and durability. These batteries utilize solid electrolytes, which improve resistance during charge cycles and reduce fire hazards.

Quickly Obsoleted Models

Ironically, the EV industry’s blazing fast technological progress also contributes to its vehicles’ marked depreciation. It doesn’t take EVs decades to improve. Yearly releases make considerable improvements to efficiency, safety, and convenience. This means that there is a perceivable difference in quality between models only a year apart, causing “old” models to become outdated far more quickly than a traditional ICE vehicle might.

Additionally, improved batteries and material sourcing rapidly reduce manufacturing costs. These savings are often translated to lower market prices, accelerating the devaluation of older models.

Selective Government Incentives

Buyers are often denied access to the full scope of federal tax benefits if they purchase a used EV. This is partially because government programs are meant to support the manufacturers and incentivize EV development, which is most effective if consumers buy new ones.

These financial benefits can make the out-of-pocket cost of a new EV considerably closer to the used value. As a result, the secondary market for EVs is impacted, as buyers may prefer purchasing new models that qualify for incentives rather than used ones that do not.

Consumers and speculative investors must consider how depreciation affects the secondary market and watch how automakers work to maintain industry stability.

Loan vs. Buy Rates: What’s Changing?

Understanding the consumer’s options when purchasing an EV provides investors with essential context. It helps them understand how consumers respond to trends and which financing bodies benefit most from EV growth.

Rising Interest Rates and Their Effect on EV Financing

The 10-year Treasury Bond Yield is the interest rate applied to the US government when it borrows money. This interest rate is used as a national benchmark and affects interest rates set by banks and other financing entities.

Only a few days into 2025, the 10-year Treasury bond yield exceeded its peak from 2024. This surprise uptick led to increased auto loan rates in the following months. Additionally, the turmoil brought by current US tariff policies and subsequent trade wars is substantially decreasing the likelihood of lower interest.

Why Leasing EVs Is Becoming More Attractive in 2025

In comparison, leasing is quickly losing its stigma and emerging as the more tempting option. Manufacturers, particularly smaller outfits, are pushing favorable lease deals to increase their brand’s visibility on roadways.

This allows dealerships and services to provide more consumer-friendly monthly lease payments while avoiding the risks of short-term depreciation. Leasing EVs will likely remain the more popular option as long as EV technology maintains its current growth, improving models’ range and features with every iteration.

Tax Incentives & Policy Impact

Tax breaks and rebates are crucial to our current EV market, influencing consumer and automaker decisions. Federal and state-level policies continue to evolve, affecting both buyers and leasing options.

The Inflation Reduction Act (IRA) and Federal EV Credits

There are various federal benefits for EV owners, namely the 2024 EV tax credit, which provided up to a $7500 tax credit for people buying a new EV.

The 2022 Inflation Reduction Act introduced this benefit to reduce Americans’ carbon footprint. While the maximum benefit is only given to consumers buying new EVs, those buying used models may qualify for up to $4000.

The tax credit also applies to leased vehicles. Lease contracts can earn consumers up to $4000 since EVs qualify as commercial vehicles under the Inflation Reduction Act.

State-Level Incentives

Many states, like California, New York, and Colorado, offer distinctive EV tax credits and rebates. These benefits reduce ownership costs and make EVs more viable for long-term use. Incentives often change based on income levels, vehicle models, and whether the car is purchased or leased.

Investment Implications: Who Benefits?

EV financing and purchasing trends are evolving, and various industries stand to benefit. Automakers, financing organizations, and tech suppliers have the most direct connections to the industry and its success. These should be the first places every prospective investor looks.

Automakers (TSLA, F, GM, RIVN, LCID, BYDDY)

The most obvious beneficiaries of EV success are the automakers like Tesla, Ford, GM, and Rivian. However, they are also spurring this growth by constantly innovating on technology and financing options, improving the mass market appeal and affordability of their product.

Tesla

Tesla was among the first to control its products in the secondary market. The EV giant’s trade-in program accepts used Teslas and provides credit toward a new vehicle. Afterward, Tesla updates the software and parts before reselling the vehicle.

This strategy is most frequently seen with upgrading smartphones, but Tesla has applied it to a far pricier product. It helped Tesla create stronger ties with its customers, boosting product loyalty and profiting doubly on a single vehicle.

In 2023, Tesla reported that about 20 percent of its vehicles were leased. This focus on leases provides the company with a steady and repeating revenue stream that takes maximum advantage of the EV market’s quirks.

General Motors

GM is one of Tesla’s largest competitors and has created much-needed competition in the US market. Notably, GM worked with EVgo to create a strong charging infrastructure along highway systems that provided an alternative option to Tesla’s Supercharger network.

Additionally, GM Financial crafts competitive financing options, directly controlling interest rates and lease offers on a flexible vehicle lineup.

Rivian

Rivian is a newer market entrant that targets a different niche than the bigger names in the industry. Rather than make sport or city-focused vehicles, Rivian creates electric pick-up trucks, delivery vans, and rugged SUVs.

Previously, batteries were not powerful enough to reliably perform in vehicles meant for more rigorous use. Rapid technological advancements and the spread of EV charging stations around the nation have helped “working vehicle” manufacturers like Rivian become more mainstream.

Auto Financing & Leasing Companies

The favorable terms offered directly from automakers are often competitive, causing many consumers to rely on auto financing or leasing companies to afford an EV.

Ally Financial and Capital One are major auto loan services garnering partnerships with equally large titans like GM and Ford. These exclusive deals create a pipeline of interested buyers between the manufacturer and the financier. These partnerships also allow auto financers to offer better lease terms to loan applicants than most competitors.

On the other hand, Credit Acceptance Corp (CACC) is targeting a more forgotten demographic in the EV game. Buyers with lower credit scores are often denied loans. However, EVs are growing more affordable, and the price gap between traditional cars is closing fast.

The growing EV interest among groups previously left out of the industry due to high price points has allowed CACC and other lenders to swoop in with subprime auto loans.

EV Battery & Tech Suppliers

Batteries are expensive and are one of the main reasons for historically high EV prices. They are made from high-cost raw materials like lithium, cobalt, nickel, and various other metals. Prices are also affected by the battery’s size and the vehicle type it is designed for.

However, battery residual values heavily impact the used EV market. Consumers want a vehicle that keeps its value well, and any range loss leads to significantly reduced resale prices. This reticence firmly pushes the leasing sector, in which consumers use the EV without incurring many drawbacks of personal ownership.

The leasing model is beneficial to battery suppliers since it provides better chances to sell replacement batteries to manufacturers who can better handle the costs. These replacements create another selling avenue for their product aside from new vehicles.

Additionally, breakthroughs in unexpected commercial areas are causing more money to flow naturally into the EV industry. CATL provides a wide array of vehicle solutions, creating batteries for scooters, construction vehicles, and even hybrid-powered sea vessels.

QuantumScape is also advancing the field via solid-state battery manufacturing. R&D financing is crucial, but improvements to these batteries’ weight and size will make them the new industry standard in the coming years.

Future Trends

It is expected that the EV leasing market will continue to pull ahead from outright sales in the next five to ten years. Depreciation rates and higher interest rates coming in 2025 are deterring consumers from buying EVs for themselves. However, new technologies like solid-state batteries or the removal of federal benefits for new vehicles may shake that norm.

Investors should consider positioning themselves in stocks that benefit from leasing trends, focusing on supporting manufacturers and financing organizations. Tesla and GM are among the stocks that will likely benefit from increasing leasing trends.

Whether consumers finance or buy an EV affects automakers, suppliers, lenders, and investors. Grasping these relationships and watching them react to incoming technologies is crucial to proper investing strategies.