EV's new tax credit looks generous, but it's complicated

Well, it depends. Many EVs currently eligible for the tax credit have been exempted under the new bill, but some of the most popular models are currently not eligible for government assistance, despite the new tax incentives. subject to Meanwhile, automakers warn that the majority of U.S.-made vehicles will miss out on the most generous credits because of strict EV battery procurement requirements (designed to exclude China).

Here's what anyone interested in buying an electric car should know about tax cuts under the Inflation Bill.

Generous tax deductions — with large asterisks

This bill introduces two tax deductions for new EVs and one car That adds up to $7,500 per person. New electric vehicles are eligible for a $3,750 credit if they meet certain criteria. Final assembly must be done in North America. Price must be less than $55,000 ($80,000 for pickup or SUV). Buyer's annual income must be less than $150,000 (or higher if married or head of household). An additional credit of $3,750 applies if the

EV's battery meets fairly stringent requirements. Automakers have expressed concern that these requirements will make full credit unavailable for any vehicle in the United States.

Not all batteries are included

To qualify for the $7,500 full credit, you must purchase your vehicle in North America or any country with which the United States has a free trade agreement. You need to assemble the battery. Made in China, where most batteries are made today. In fact, automakers have warned that given China's importance in the battery market, the cars currently on the U.S. market won't get full credit.

"Fundamentally, there are no vehicles today that meet that [requirement]. With the current battery supply chain, it will be very difficult to meet it within the bill's timeframe." said Carla Bailo. , CEO of Automotive Research Center. "Even Tesla, which has the most content in America, can't come close to it at the Gigafactory in Nevada." 

According to Alliance for Automotive Innovation CEO John Bozera, There are currently 72 EV models sold in the US, none of which qualify for the $7,500 credit under procurement requirements. AAI called the requirement a "major setback" to the industry's target of 50% EV sales by 2030.

IRS will have final say

Consumers should not despair, though, as the version of the bill that passed the Senate on Sunday is not the last word on EV credits. said Joe Britton, Executive Director of the Zero Emission Transportation Association (ZETA).

Although the law is a rough outline, ultimately it is he who explains exactly how the agency determines which vehicles meet procurement requirements. It depends. According to the Inflation Bill, the IRS should release these details by the end of the year. 

"The problem is that the IRS and Treasury do not know how to measure [requirements]. Clearly they are trying to count every gram of lithium or cobalt. No, I'm not in a position to do that," Britton said. "In the bill it is written as a percentage of value, and value can be measured in many ways." 

ZETA gave automakers longer deadlines to comply with procurement requirements. reported Politico,and the Treasury Department may temporarily waive these procurement requirements without Congressional action. That happened with last year's "Buy America" ​​clause in the Infrastructure Act, Politico said . }

The Control Inflation Act also includes tax breaks for people buying second-hand EVs. And unlike new cars, used electric cars don't have battery limits. 

A used EV purchaser is eligible for a $4,000 credit as long as the purchase price of the car is less than $25,000. 

"This is a big problem for middle-class families, who can afford an EV," says Bairro of the Center for Automotive Research.

But that price applies to less than one-fifth of the used EVs currently on sale, said Scott Case, head of research firm Recurrent, ,. told the New York Times.

Tesla, GM and Ford models receive extended credit

America's best-selling electric cars — built by Tesla, Ford and GM — now receive tax credits or, in Ford's case, they are losing their credibility. This is because all three manufacturers sold far too many vehicles to qualify for the $7,000 EV credit currently on their books. 

New Clean Vehicles His credits remove his 200,000 per manufacturer limit. That means the buyer of these cars is entitled to at least $3,750 from Uncle Sam again. 

With prices starting at just over $25,000, the Chevy Bolt is again eligible for credit. Also eligible for credit is the Ford Mustang Mach E, his second best-selling EV last quarter with an initial cost of around $44,000. As for the 

Tesla, only the cheapest Model 3with a base price of just under $47,000 is eligible for credit, and that Model Y SU is eligible in all trim levels. becomes.

Luxury and some foreign cars are exempt

Tesla's luxury models, including the Model S and Model X, are too expensive to qualify for the tax credit , is excluded from this bill. 

Other popular luxury models such as the Audi e-tron, Porsche Taycan and Polestar 2 are also excluded because they are either too expensive or assembled outside of North America. Some lower-priced foreign brands, notably the Hyundai IONIQ 5 and Kia EV6, are also excluded from the credit as they are assembled in South Korea.

Indirect boost for buyers.

EV buyers face a tough market. Prices for vehicles of all kinds are skyrocketing amid supply chain problems and rising costs of things like metal and batteries.  

A typical EV is still about $10,000 more than a comparable conventional vehicle, so EVs will need whatever help they can get to reach the United States. The goal of reducing the use of fossil fuels sufficiently to avoid the worst effects of global warming by mid-century.

Recent EV sales accounted for 5% of all new car purchases in the US, but achieving a clean slate for the Biden administration should grow exponentially. transportation goals.

To this end, the IRA contains a series of provisions intended to make it easier and cheaper for automakers to build cars in the United States. Extracting battery minerals, advanced production, and funding advanced energy projects builds cleaner cars. Low manufacturing cost. According to ZETA's Britton, the savings should be passed on to consumers.

"Some companies may look at the bill and think that industrial policy is more valuable than the demand that [consumer EV] credits create," he said. “Automotive credits are the biggest driver for consumers, but if you are a manufacturer, the assistance and support provided by this bill, as well as industrial policy, will be very helpful.