Why electric cars are so popular in Puerto Rico
Tax incentives and no road trips
Puerto Rico is a possession of the United States of America. Everyone who is born in Puerto Rico is a US citizen, just like in Kansas or Kentucky. The President of the US is the President of Puerto Rico. You travel there without needing a US passport, just like when you travel to Alaska or Hawaii. It’s the same old US Post Office.
Yet, the Puerto Rico car market is a little bit different than it is inside the 50 states. The first sign is the gasoline station, where the prices are per liter, not per gallon. It would be $1.00 per liter, not $3.78 per gallon.
How cars are taxed in Puerto Rico
Cars are taxed on a “one and done’ principle in PR. Instead of you having to pay some sort of large sales or transfer tax every time you resell the vehicle, you pay a (larger) lump sum up front for each new vehicle that enters the island.
More technically, the company that imports the vehicle pays the “lump sum” combined “import” and “sales” tax when the car is moved away from the holding area by the San Juan harbor. Then, on the “Monroney” sticker, the amount of the tax is shown.
At the “floor” of the market -- the least expensive, smallest cars -- this combined “pay once” tax isn’t dramatially larger than the regular sales tax, which is 11.5%. With larger and more expsive cars, the tax increases disproportionately.
This is one reason why the PR car market is skewed toward the “base” models of each nameplate. For example, two of the cars that you see much more often in PR than inside the 50 states, are the Mitsubishi Outlander and Kia Seltos. Those two cars are disproportionately sold in their base versions, which may be even more basic than you will find in the 50 states.
Here is a video that explains how it works to buy a car in Puerto Rico:
Electric cars are exempt from tax
Battery-electric vehicles (BEVs) and Plug-in hybrids (PHEVs) are exempt from these taxes. That is a huge subsidy, and it is a bigger subsidy the more expensive and larger the car. Therefore, you would almost be crazy to not seriously consider buying at least a PHEV in Puerto Rico, especially if you are considering a larger, premium vehicle such as a BMW SUV or Volvo SUV or equivalent. You are getting additional value possibly for free, thanks to this tax exemption.
This has already had an effect on the higher end of the market, and soon enough it is likely to become a phenomen for the lower segments as well, as more and more BEVs and PHEVs become available at prices under $30,000. Today, the base price of a Kia Seltos is just over $25,000 all-in, and other compact SUVs are available starting around $30,000.
Price of gasoline vs price of electricity
The price of gasoline in Puerto Rico is similar to the US nationwide average gasolien price, as of early 2024. However, the price of electricity in Puerto Rico is higher than the US nationwide average. This factor hurts demand for BEVs in particular, although not PHEVs as much because many or most PHEVs are purchased without being plugged in frequently; they are purchased because of the hefty tax incentive described above.
The island factor
One reasonable argument against BEVs in the lower 48 states is that The United States a is an unusually large country with enormous distances to travel. While many people never go on a road trip, or at least not every year or two, there is always the chance that it might happen, either out of choice or out of need.
As a result, this factor has put a lid on electric car sales in the 48 states. Charging is slow, and charging stations are few and unreliable. That will change, step by step, in the future, but it continues to be an issue today and will likely continue to have some residual impact for many years to come.
Well, in Puerto Rico this is not a factor. Puerto Rico is shaped like a brick -- around 100 miles wide and barely 35 miles tall. So, 100 miles x 35 miles. How many people will ever drive even 100 miles in a day in Puerto Rico?
As with the rest of America, I suspect the average Puerto Rican drives only 35 miles per day -- but in PR you just won’t have those outlier days where you have to drive 400 or 600 miles. That just won’t happen. There is no need to prepare for Winter by buying Winter jackets in PR either, because it never gets even remotely cold. When was it ever below 75 or so degrees in PR? It’s basically 80+ almost all the time, no matter the season.
Why you see so many electric cars in Puero Rico, summarized
Huge tax incentive on BEVs and PHEVs.
Almost zero need to ever drive 100+ miles in a day, let alone 200+ miles.
With electricity prices higher than in the 50 states, this will skew the market in favor of PHEV instead of BEV, as these vehicles are likely to be fueled by gasoline most of the time. This also means that that the EV market will expand dramatically in Puerto Rico just as soon as more PHEVs will become available at lower prices, especially as we approach the $30,000 price point.