The Price Sensitivity of the Demand for New Electric Vehicles in Washington State

This study examines price sensitivity and consumer preferences for electric vehicles (EVs) in Washington State in 2024 by building a discrete-choice demand model to capture consumers' EV purchasing decisions. The findings show that price elasticity is smaller in magnitude when using transaction prices (mean of -0.87) compared to the estimate based on Manufacturer's Suggested Retail Prices (MSRPs), which yield a mean elasticity of -1.22. This suggests that MSRPs mostly lower than actual transaction prices may overestimate price elasticity. Transaction price is therefore preferred for demand-side subsidy design and for studying consumer preferences. Additionally, the results highlight the importance of using trim-level data, as aggregating to the model level introduces significant estimation bias. A counterfactual analysis further demonstrates that removing federal tax credits would substantially reduce EV sales, while shifting Washington State tax credits from being based on transaction prices to MSRPs would only shift sales across EV trims. These findings emphasize the need of EV tax credits to promote EV adoption and their impacts on consumers' vehicle choices.