New Jersey was the best state for EV affordability. Not anymore

GREEN BROOK, N.J. — In New Jersey, the diners are plentiful, Bruce Springsteen is a patron saint and electric vehicles just got a lot more expensive.

Starting in July, the total cost of ownership for EVs here is increasing by $1,350 on average over a five-year purchase, booting New Jersey from the most affordable state to buy an EV in the U.S. to No. 3 behind Colorado and Illinois, according to data from J.D. Power.

That's largely because of the reversal of a decades-old incentive that provided a sales tax exemption for zero-emission vehicles. New Jersey is phasing out the exemption over a year, so buyers will soon pay a 6.6 percent sales tax on EVs, plus a new fee that goes into the state's Transportation Trust Fund. The new fee increases by $10 each year, starting at $250 and capped at $290.

New Jersey Democratic Gov. Phil Murphy's administration has "slashed the state incentives and raised the cost of EV ownership," said Jim Appleton, president of the New Jersey Coalition of Automotive Retailers. "Consumers have been sold a line about EV purchases and ownership that is starting to fall apart because governments aren't prepared to put money where their mandates are."

New Jersey represents a broader change happening all over the nation. Several states have been unable to fund incentive programs or have rolled back or repealed them as political winds change and EV adoption doubts set in.

Virginia lawmakers in 2021 passed a program to give buyers a $2,500 rebate for EVs below $55,000, but the general assembly has not yet provided the funding. California ended its Clean Vehicle Rebate Project and transitioned to a new program for only low- and middle-income buyers. Georgia formerly had a $5,000 tax credit for EV purchases, but the state eliminated it in 2015 and drivers now pay an EV registration fee.

Automakers, dealers, industry groups and other stakeholders differ on the importance of incentives to power EV adoption as states scramble to meet their targets. There are factors beyond cost — such as charging infrastructure — that influence vehicle purchases. There are also many elements that feed into total cost of ownership and a consumer's perception of vehicle costs.

Overall, EV prices have fallen. The average transaction price for a new EV excluding the federal tax credit dropped by 9 percent to $57,584 in the first quarter from the same period a year ago, according to J.D. Power. The average transaction price decreases by $3,700 with the tax credit factored in.

"The incentives are important and helping, but they're not the only thing that's helping anymore," said Kristen Richter, senior manager in the J.D. Power EV practice. Automakers "are making moves to adjust."

In 2004, the New Jersey Sales and Use Tax Act instituted a sales tax exemption for vehicles that were zero-emissions certified to the California Air Resources Board standard. This included sales, rentals and leases for new and used zero-emissions vehicles, but not hybrids.

"New Jersey's sales tax exemption is 20 years old, and was enacted in a completely different environment for EVs," a spokesperson for Murphy's administration said in an email.

Prior to this month, total cost of EV ownership in the state, including incentives, electricity use and more, was more than $10,000 cheaper on average over five years than comparable combustion engine vehicles, according to J.D. Power.

J.D. Power estimates that New Jersey's EV sales made up 6.6 percent of the state's new light-vehicle retail sales in 2023. New Jersey is supposed to have EVs make up 43 percent of vehicles delivered for sale by 2027, and 100 percent by 2035.

The Murphy administration said in February that ending the sales tax exemption would create about $70 million in revenue for the state in the first year.

Additionally, New Jersey lawmakers added an annual fee for the state's Transportation Trust Fund. That fund maintains the state's infrastructure, such as public transportation, roads and bridges. Combustion engine vehicle drivers pay into the fund via a gasoline tax.

In theory, the fee is an annual payment starting at $250 and increasing by $10 per year up to $290. In practice, car owners in New Jersey pay four years of vehicle registration up front. EV buyers also will pay four years of transportation fees in the same way, adding up to $1,060 to the sticker price and registration this year. That registration fee usually costs between $350 and $500, depending on the class of vehicle.

When announcing the fee for EVs, the Murphy administration said it will "ensure that all motorists using the roads share in the responsibility to maintain their conditions."

New Jersey is not the only state or lawmaker adding EV fees.

Sen. Deb Fischer, R-Neb., introduced the Stop EV Freeloading Act in September, which would charge manufacturers a one-time fee that goes into the federal Highway Trust Fund. In Texas, EV drivers pay a $400 fee for registration and a yearly $200 maintenance fee.

And EV drivers in New Jersey may encounter yet another incentive change this year. The state's Board of Public Utilities has a program called Charge Up New Jersey that provides rebates for EVs and chargers. Now the board has proposed reducing the rebate from $4,000 to $2,000. Already, the program has been difficult for dealers to advertise as the rebates are available only until the funding runs out.

David Ferraez, president of Green Brook Buick-GMC, Green Brook Chevrolet and Bridgewater Chevrolet, said incentives help sell vehicles and can make a "big difference." But the inconsistency in incentives and the task of explaining the maze to consumers is a challenge he'd prefer not to deal with.

"Huge incentives — that somebody has to pay for — will help sell EVs, and it's already proven to do that," he said at his Buick-GMC dealership here. But "I don't want my business plan to be based on, 'I hope the government does this or the state does that or the feds do this.' That's not a good business plan."