For those who don’t know, the electric vehicle tax credit is officially back and bigger than ever. The 2022 Inflation Mitigation Act changed which new EVs get a tax break and adds a federal tax credit for select used EV sales, but the requirements are stricter than ever. It’s a big complicated mess.
The Clean Vehicle Credit Act aims to reduce the cost of purchasing an electric vehicle for millions of Americans by extending the federal tax credit on purchases through 2032. However, some new restrictions include vehicle prices, income levels, “Made in China”. Rules and requirements for material, components and assembly of the vehicle and battery.
As a result, no one knows what to expect or how to proceed, including automakers. You see, if the vehicle costs too much, it doesn’t qualify for a loan. And depending on where they are manufactured or the battery sourced, some vehicles only partially qualify.
To make matters worse, many automakers are inflating prices to over $7,000 per vehicle, which is roughly equivalent to the federal loan, essentially rendering it worthless. Here’s what we know about the federal EV tax credit that just went into effect, and what potential buyers can expect.
What is the new EV tax credit?
Prior to this law, buyers of electric cars and plug-in hybrids could receive a tax credit of up to $7,500 if the manufacturer had sold no more than 200,000 qualifying vehicles. GM and Tesla hit that milestone some time ago, and recently Toyota surpassed 200,000 vehicles.
However, the new Inflation Reduction Act extends the loan until December 2032 and removes the 200,000 vehicle limit. Those who purchase a new EV after December 31, 2022 can receive the same $7,500 EV tax credit. Maybe.
Additionally, this latest law now brings previously owned EVs into the mix as well. A clean vehicle (EV, plug-in hybrid, etc.) that is at least two years old may be eligible for up to $4,000 or 30% of the vehicle price, whichever is lower. However, this only applies to used EVs sold by a dealer, and the car price cannot exceed $25,000.
There is good news for the sale of used electric vehicles. Used vehicles do not have to meet country of origin requirements.
With all new electric vehicles, the total loan amount is based on multiple factors, so this is all a mess. Where the battery and parts come from and the region of vehicle assembly will factor in how much (if any) you get from the federal EV credit.
New restrictions on the electric vehicle tax credit
If a vehicle is too expensive or relies heavily on foreign manufacturing, it will not qualify for the new loan. And if you make too much money, you won’t be eligible for that loan, no matter what car you buy.
For example, by 2024, 40% of battery materials must be sourced from North America or a “US trading partner” to be eligible for the full $7,500. By 2029, 100% of battery components will need to be manufactured and sourced in North America. Currently, most electric vehicles in the United States do not meet this threshold or cost too much and are not eligible.
Perhaps the biggest problem for buyers is price restrictions. Any EV classified as a truck, van, or SUV must not have an MSRP greater than $80,000. If so, you can say goodbye to that federal tax credit. And with Ford, Rivian, and Tesla continuing to raise prices, most electric vehicles are overpriced.
For sedans and hatchbacks, the price limit is an MSRP of $55,000. Anything above that price point doesn’t qualify. But even if a new EV is relatively affordable, it may only be eligible for a partial credit if it doesn’t meet battery and manufacturing constraints.
And finally, the credit will not be available to people with a certain income level. To receive the state EV tax credit, buyers must earn no more than $150,000 for individuals, $225,000 for the head of household, and $300,000 for married couples filing taxes together.
Which EVs qualify (or don’t) for the tax credit
are you still here with me Potential buyers are probably concerned, and if you’re wondering, “Which EVs qualify for the new tax credit?” you’re not alone. The answer to that is complicated, and we’re not sure what to tell you.
Again this whole thing is a mess. We’re not sure which EVs will qualify in 2023 simply because we don’t know how much they’ll cost. Almost every major brand has been raising prices recently, even for unreleased vehicles, and we don’t see that trend slowing anytime soon. And that’s before we even attempt to look at battery materials, assembly, and everything else.
According to the Alliance for Automotive Innovation, over 70 EV vehicles (battery, plug-in hybrid, and fuel cell) are available in the United States. Unfortunately, 70% of the vehicles currently available will not qualify in 2023.
After 2024, battery procurement requirements will increase by 10% every year and will reach 100% by 2029. If nothing changes by then, no vehicles will be eligible for the tax credit. However, Tesla does have a battery cell manufacturing facility in the US, and manufacturers have until 2029 to streamline the process and source materials from acceptable sources.
If you buy a new high-end 2023 Ford F-150 Lightning with the extended-range battery, it’ll cost over $80,000 and probably doesn’t meet any of the requirements. However, select entry-level models from Ford and others do, so keep that in mind.
For example, it sounds like the Chevy Bolt, Chevy Blazer, Ford Mustang Mach-E, Nissan Leaf, and 2023 (US-made) Volkswagen ID.4 will qualify. If Tesla classifies its Model Y as an SUV and you don’t buy the highest specification, it could qualify for the tax credit.
The F-150 Lightning, Rivian R1S, Rivian R1T, Cadillac Lyriq, Cybertruck and Silverado EV could qualify. Maybe, depending on the equipment and whether or not we see further price increases.
Then several vehicles that were not manufactured in North America qualify. We’re talking about Polestar 2, Polestar 5, all those Hyundai and KIA electric vehicles, Audi e-Tron, Lexus RZ, Nissan Ariya, most Mercedes-Benz models and several other vehicles. Then expensive luxury electric vehicles are out of the question, regardless of their origin. We’re talking the Tesla Model X, Model S, Lucid Air, BMW models, and any electric truck with a long-range battery.
things have to change
Ready for good news? In 2024 and beyond, dealerships will be able to offer buyers the value of the tax credit upfront, which should save you money and make buying an electric vehicle easier. But only if you or the vehicle qualify at all.
Honestly, it probably won’t.
The Anti-Inflation Act is now official. The new EV credit aims to bring as much production as possible into the United States, if not all of it, spurring automakers to lower prices and helping Americans buy clean vehicles.
As things stand at the moment, that won’t work. Either automakers need to make drastic changes, or this law needs to be revised before it works permanently. Probably both.
Either way, get out your popcorn ’cause it’s gonna be a sucker
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