The Covid-19 pandemic has delayed many things, including production of the 2020 Ford Escape Plug-in Hybrid SUV, which is just starting to arrive in dealerships. The IRS’s calculation of the federal tax credit for which it qualifies also was put on hold.
But the agency recently confirmed that buyers of the PHEV will be eligible for a $6,843 tax credit, just as Ford anticipated. Now the automaker has a rare selling point for its popular crossover: it may cost less than its gasoline-powered counterpart.
The five-seater is one of the company’s best-selling vehicles in North America and offers a wide-ranging lineup with many options to help buyers choose the right model. That includes the three new plug-in hybrid variants of the SUV that were introduced in May: the entry-level Escape SE PHEV ($33,040), the mid-level Escape SEL ($35,620) and the Titanium ($38,835). Each are priced higher than their gas-powered counterparts, but that’s before taking into account the near-$7,000 federal tax credit for which these plug-ins officially qualify.
All Escape PHEV models have a maximum output of 200-horsepower from a 2.5-liter four-cylinder engine and 88-kilowatt electric motor; an electric driving range of 37 miles from its on-board 14.4 kilowatt-hour lithium-ion battery; and an EPA-estimated fuel economy of 100 mpg equivalent, or MPG-e. Adjusting for the incentive brings the effective purchase price of the entry-level SE PHEV trim down to $26,197, almost $1,000 less than the $27,105 starting price of the gas-powered Escape SE. For the first time in the industry, the electrified variant would be a more cost effective purchase for consumers.
Toyota also is introducing a plug-in hybrid variant of its top-selling RAV4 compact SUV for the 2021 model year. Dubbed the RAV4 Prime and priced higher than the Ford Escape PHEV, it’s an attractive offer for buyers considering the 2020 Toyota RAV4 Hybrid because—depending on the trim—it may cost less.
The 2021 Toyota RAV4 Prime SE is expected to have an 18.1 kWh lithium-ion battery with a manufacturer-estimated 42-mile electric driving range. It will also achieve 90 MPG-e, 10 MPG-e less than the Ford Escape. The SUV’s battery size is large enough that it qualifies for the full $7,500 federal tax credit. When taken into account, the credit drops its $38,100 starting price to $30,600. Although that’s still almost $1,000 more than the XLE Hybrid model ($29,645) on which it is closely based, the RAV4 Prime comes better equipped with heated seats and an 8-inch touchscreen. These are optional features on the XLE Hybrid that, if added, would drive the sub-$30,000 price higher.
The top-end RAV4 Prime XSE ($41,425) will cost $33,925 with the tax credit, which is $375 less than base price of the XSE Hybrid ($34,300). It also adds additional standard features such as 19-inch wheels, a 9-inch touchscreen and vertical LED accent lights.
Is a PHEV Worth It?
Though the math pencils out when accounting for the tax credit, gratification is not immediate. The IRS enables buyers to deduct $7,500 from their tax bill, but it doesn’t reduce the size of the check the customer must write to drive the vehicle off the lot.
“A tax credit is not the same thing as cash off the hood,” said Stephanie Brinley, an automotive industry analyst for data firm IHS Markit. “It is an incentive that helps offset the cost, but it only comes into play post-purchase,” Brinley said.
The tax credit is the key to acceptance of PHEVs over gas and traditional hybrids, but only for high-income earners, said George Peterson, president of automotive research firm AutoPacific. “Tax credits are hard for many consumers to understand and you have to be a relatively high earner of over $70,000 to find the full benefit of the credit,” Petersen said.
“If the dealer can do a good job explaining the tax credit, the RAV4 Prime XSE should be nicely incremental to the XSE Hybrid, but on the sticker, the Prime is still $7,125 higher than the XSE Hybrid,” Peterson said. “There are other incentives, such as HOV lane access, but the dealer has to sell the tax credit.”
That means while comparison shopping, potential PHEV buyers should factor in the larger sales tax and registration fees accrued due to the higher MSRP compared with those for a lower priced gas-powered vehicle. Skipping trips to the gas station is one way to offset these costs, but that happens only if the owner has regular access to an outlet, which many street-parking apartment-dwellers do not.
Plug-in hybrids can only attain such extreme fuel efficiency when they’re charged daily. Without access to a 240-volt charger at home or at work, the fuel economy of the Ford Escape PHEV its drops significantly from 100 MPG-e to 41 mpg. That’s the same fuel economy that the RAV4 Hybrid achieves in city driving.
EV Versus PHEV
As dealerships begin showcasing the new technology, buyers may warm to the concept of hybrid vehicles that can also be charged like an EV. With deliveries just starting, it’s too soon to say how popular new advanced powertrains will be, especially since the PHEV segment in North America has slowed in the last few years. Plug-in hybrids accounted for 11% of electrified vehicle sales in 2019, down from 18% in 2018, according to IHS Markit.
Manufacturers and industry experts often cite customer awareness as one of the reasons for slow sales. For a couple years, the only non-luxury option in the plug-in hybrid SUV segment was the Mitsubishi Outlander PHEV, the best-selling plug-in hybrid SUV globally. As more plug-in hybrid crossovers became available last year in North America, including the 2019 Subaru Crosstrek Hybrid and the Range Rover Sport Hybrid, the additional competition chipped away at the Outlander PHEV’s sales, which fell from 4,166 units in 2018 to 2,810 in 2019.
Part EV and part gas-powered, PHEVs were expected to serve as a stepping-stone for consumers curious about switching from gasoline to electric, but afraid of “range anxiety,” which can occur if a driver finds themselves running down the battery miles away from a charger.
Range anxiety might be less of an issue now that a wider swath of EVs are coming to market. While PHEV sales flounder, the popularity of all-electric vehicles continues to grow. Sales of EV increased 1.3% in 2019, and accounted for 5.3% of total new cars sold in 2019 compared with 4.7% in 2018, according to IHS Markit.
As adoption of pure EVs continue, batteries get cheaper and range gets better. Chevrolet’s 2020 Bolt now boasts a sticker price under $40,000 and offers a 259 range. The more affordable, longer-range EV options there are in the market, the case for expensive PHEVs could fall flat. Buyers might leapfrog the entire PHEV segment altogether in favor of less complicated fully electrified vehicles.