THEInflation Reduction Act of 2022was signed into law on August 16, and part of the law brings a slew of revisions to the Plug-in Electric Motor Vehicle Credit, now called the clean vehicle credit. Both names are a fancy way of describing the familiar.federal tax credits for electric vehicles;. Some of these new changes are undeniably good, but many of them may frustrate EV buyers, in part because some elements of the old tax credit program were immediately canceled.
If you are an EV reservation holder waiting for your car to be delivered, or a consumer considering purchasing an EV, what do you do? Are you still eligible for the tax credit? Can you still buy the car? Should you step out of line? It's a confusing time, but we're here to help.
What has changed with the EV tax credit and why has it changed?
Under the old system, any plug-in vehicle with a battery of more than five kWh was eligible for a tax credit of up to $7,500, depending on the size of the battery.As we explained earlier, the tax credit had its flaws. it was a credit, meaning it wasn't available to people until they filed their taxes, and depending on income and tax liability, it might not always be available to all EV buyers. There was also an overall sales cap of 200,000 for each manufacturer, which meant longtime sellers like Tesla, General Motors and, more recently,Toyotathey were no longer eligible for tax credits. These instructions have changed.
One of the main goals of the Inflation Reduction Act is to address climate issues, and it has changed many qualifications, methodology and limits of the EV tax credit scheme that is supposed to encourage people to buy electricity. In theory, the bill is intended to encourage the development of the EV supply chain and reduce dependence on foreign countries. Now, the new EV tax credits are targeted and designed to reward companies that assemble cars and battery technology in North America.
What is the new tax credit?
With the new tax credit, eligibility for the $7,500 has been split in half, with each 50% of the tax credit requiring certain qualifications. Both halves are tied to battery manufacturing, and vehicles manufactured outside of North America are not eligible. Here's a quick breakdown of the key points:
- Credit eligibility of $3,750 is based on battery manufacturing content. By 2023, EV batteries must have at least 40% battery components and materials sourced and manufactured in a country with which the US has “free trade”. This percentage increases by 10% each year, reaching 100% in 2029.
- Credit eligibility of $3,750 is based on battery placement. Must be made in North America.
- The 200,000 unit cap has been removed, allowing Tesla and GM vehicles to be eligible for EV tax credits again. Previously, they had reached this limit and therefore did not qualify for credits.
- The tax credit can now be applied at the point of sale.
- Sedans more than $55,000 USD and SUVs and trucks more than $80,000 USD are not eligible for the credit.
The changes in the new laws will be implemented on two levels. While the full force does not go into effect until January 1, 2023, the North American manufactured suitability warning is effective immediately. With this change, a ton of cars became ineligible for tax credits literally overnight. This is where things get confusing.
Until this deadline next year, some aspects of the current tax credit system will remain in place. The IRS has declared a transition period, but the transition period complicates things a bit, especially for people who have already bought and are buying cars.
The official word of the IRS
You can find the complete IRS transition rule herehere, but we'll distill the big parts down to a manageable size for you.
When the bill was signed into law, the Made in North America clause automatically removed any EV manufactured outside of North America from being eligible for tax credits. The decision was abrupt, so some reserve owners and those waiting for their electric cars to arrive from the factory may unknowingly be ineligible for a loan they thought they were.
The IRS says EV buyers who own a vehicle that has a binding purchase agreement will move to the old tax credit status. According to the IRS, "If a customer has made a substantial non-refundable deposit or down payment, this is evidence of a binding contract." This definition is extremely important because many customers placed orders and deposits well in advance of production of their new electric vehicles.
For vehicles purchased before August 16, 2022
From the IRS: “If you entered into a binding written agreement to purchase a qualifying new electric vehicle before August 16, 2022, but you do not own the vehicle on or after August 16, 2022 (for example, because the vehicle has not delivered), you can claim the EV credit under the rules in effect before 16 August 2022. The final assembly requirement does not apply before 16 August 2022."
Vehicles purchased and delivered between 16 August 2022 and 31 December 2022
More from the feds: “If you buy and own an eligible electric vehicle after August 16, 2022 and before January 1, 2023, in addition to the final assembly requirement, the rules in place before the Electric Energy Reduction Act apply inflation for EV credits (including those related to production limits on vehicles sold); If you entered into a binding written agreement to purchase an eligible new vehicle before 16 August 2022, please refer to the rule above."
Because we still have problems
The transition period and the Made in North America clause leave a huge group of EV buyers in a difficult position. If you don't have a purchase agreement in place by August 16, any electric vehicle that isn't made in the US simply won't qualify for the tax credit, period. Cars like theLet's go for EV6mHyundai Ioniq 5are no longer eligible for the $7,500 credit.
The world is still recovering from the damage caused by COVID-19 and its consequences on the supply chain and production capacity of almost all industries. That means many customers ordered electric vehicles months ago and made refundable deposits with the expectation that they would likely receive their car later this year.
For example,this forum posteron the forum Hyundai Ioniq 5 claimed to have ordered a car at the end of February, with a delivery date of September 1st. If you have not entered into a binding contract with Hyundai or the dealership, your purchase no longer qualifies for a tax credit. There was no way he knew this in February, nor could Hyundai have shipped the car any faster.
To make matters worse, the period between finalizing the bill and becoming law was short, only about two weeks, with the transition language and the "purchase agreement" language onlycompleted around August 7,when the project was approved by Parliament. This gave carmakers a very short window to draw up binding purchase agreements and then convince reservation holders to convert their refundable deposits into non-refundable deposits. Some merchants may have received non-refundable deposits early on, but not all. It was a free-for-all, with dealers, EV buyers and automakers scrambling to figure out which way to go.
Understandably, automakers are trying to help their customers through this strange time. Some manufacturers have issued statements, while we've asked for comments from others. Some brands have yet to respond or issue a statement, but we'll update the list as new information comes in.
Audi:"We are committed to helping the US achieve its climate change goals and those enshrined in the Paris Climate Agreement," said an Audi spokesperson. “While this legislation does not change our vision for a more electrified and sustainable future, it does eliminate the federal tax credit on most of our BEVs. We have and will remain in close contact with the US government and other stakeholders as we work through interpretation and implementation.
BMW:We've reached out for comment. No answer yet.
Canoo:We've reached out for comment. No answer yet.
Hyundai:“Hyundai recently announced $10 billion in investments in the US, including electric vehicle manufacturing in Alabama and Georgia. We are disappointed that current legislation severely limits electric vehicle access and choices for Americans and could dramatically slow the transition to sustainable mobility in this market,” a Hyundai spokesperson said via email.
He showed a scan of the Hyundai Ioniq forumsthat some dealerships may have required a non-refundable deposit to place an order for the Ioniq 5, which would be considered a purchase contract. However, many did not. The Ioniq 5 and Kona Electric are no longer eligible for any incentives.
Jaguar:We've reached out for comment. No answer yet.
He must:"Our recommendation would be for potential Kia EV drivers to contact their local dealer for updates on ordering and future inventory/availability," a Kia spokesperson said via email. Further, the representativelinked us to a post on the Alliance for Automotive Innovation blog. This post criticizes the bill and describes the potential for slowing EV adoption due to its implementation. The Kia EV6, Niro PHEV and Niro EV are no longer eligible for EV tax credits.
Mazda:Mazda has informed us that it sold out of all available MX-30 EV crossovers before August 16th. However, the 2023 Mazda MX-30 no longer qualifies for the tax credit.
Mercedes-Benz:“For sales between now and December 31, 2022, the Tuscaloosa, Alabama-based Mercedes-EQS SUV – which we expect to launch soon – will qualify for the tax credit. Regardless of this legislation, Mercedes-Benz is fully committed to an electric future. With our extensive portfolio of electric vehicles and the best dealer network in the industry, together we will make the transition a reality," said a Mercedes-Benz spokesperson.
Mini:The Mini Cooper SE no longer qualifies for the tax credit, but a Mini spokesman explained that customers who have purchase agreements by August 16 will be entitled to the old scheme.
Nissan:The Nissan Leaf is manufactured in Tennessee and is not expected to be affected by the revised tax credit rules. The Nissan Ariya, however, is built in Japan, and deliveries weren't scheduled to begin until fall 2022. We asked Nissan about Ariya reservation holders, and a representative sent us the following:
“We appreciate our customers who reserved a 2023 Nissan Ariya all-electric crossover during our reservation period. On Friday, August 12, we sent reservation holders a special communication providing the opportunity to enter into an agreement to purchase an Ariya from an authorized Nissan dealer of their choice when the vehicles become available to better position them to claim eligibility. for any federal electric vehicle tax credits that may be available to them under applicable law. This offer, which was popular with Nissan Ariya reservation holders, was active until the President signed the bill into law on Tuesday, August 16. Nissan cannot guarantee the availability of any electric vehicle tax credit and recommends that customers consult their tax advisor regarding eligibility for any credit.”
Northern Star:"Polestar has immediately restructured its Polestar 2 offering to remain competitive in the US and we will continue to adapt to the market as additional information becomes available," a Polestar spokesperson said via email. Polestar required a refundable deposit to reserve a unit, which would not be considered a binding purchase agreement. Polestar has sent messages to reservation holders saying it understands if some are dependent on the tax credit and will refund the reservations.
Porsche:"For customers who have ordered vehicles and are still awaiting delivery, their credit eligibility depends on the individual sales contract, which is a matter between them and their independent dealership," a Porsche spokesman said. "For eligible Porsche vehicle leases with Porsche Financial Services, the credit will no longer be available as a transferable credit from the date the legislation is enacted."
Subaru: We've reached out for comment. No answer yet.
Toyota:The Prius Prime hybrid and BZ4X electric are no longer eligible for state electric vehicle tax credits. Toyota says it remains "committed to an electrified future and supporting policymakers on how best to make electric vehicles more affordable and accessible to consumers, including through our US investments in battery manufacturing."
VinFast:VinFast is giving $7,500 to current reservation holders if they no longer qualify for the IRS tax credit.
Volkswagen:Volkswagen could be affected by the decision in the strangest way. Currently, all Volkswagen ID.4s in dealership lots were manufactured in Germany, which makes them ineligible for the tax credit if purchased after 16 August and not part of a purchase agreement made before 16 August.Chattanooga, Tennessee, plantrecently started producing the ID.4 for the US market at the end of July. The cars aren't expected to hit dealership lots until at least October, which means there are few VW ID.4s on lots that aren't eligible for tax credit.. We've reached out to Volkswagen for comment, but have yet to hear back.
Volvo:“In the near future, we expect the S60 Recharge, assembled at our Charleston facility, to be the only vehicle eligible for the new incentive program. In 2023 and beyond, additional provisions will be added so the Volvo Car USA team is working with government officials and hopes to clarify the language of the legislation to fully realize the bill's intent to accelerate the adoption of electric vehicles in the US. United States," a Volvo spokesman said via email.
Rivian, Fisker and Lucid:All three brands offered reservation holders the opportunity to convert their reservations into binding purchase agreements. If you didn't do this with Rivian and Lucid, any car ordered after August 16 and delivered before December 31, 2022 would still qualify for the tax credit. However, given Lucid and Rivian's problems with order fulfillment, this is highly unlikely to be possible.
GM, Ford e Tesla:These companies' electric cars are all made in North America and will continue to be eligible for the tax credit as long as the models meet the battery content requirements and fall below the price thresholds for each EV category.
What to do?
Unfortunately, there is no cheat code or loophole. If you don't have an agreement to buy an electric car that wasn't built in North America, you won't be able to get a tax credit. This means cars like the Kia EV6, Hyundai Ioniq 5, Polestar 2 and many more have become much more expensive.
If you are a reservation holder waiting for your car and have not signed a purchase agreement, these are your two options:
- Stand in line and pay the cost.Remember that the $7,500 tax credit only applies when you file your taxes under the old regime.The old design had too many holes, and at the end of the day, anyfunding numbers will be based on full price.If you are a Lucid or Rivian reservation holder, your car will still qualify for the old tax credit without a purchase agreement as long as it is delivered before 1 January 2023.
- Get out of line and buy an American-made EV.This is easier said than done. Currently,Only about 20 different models qualify for the new tax credit. Of these 20 models, many of them have very deep order books, if their order books are still open (some brands have suspended orders or announced that the cars are sold out due to supply issues). Getting off the line can mean waiting weeks or months to get a new EV at a potential discount. Considering the price variations between vehicles like theFord F-150The Lightning, or any Tesla, may not be worth it.
Similarly, if still in the navigation phase, an EV that does not qualify for a tax credit may have a shorter waiting time than an EV with a tax credit available. Is the promise of up to $7,500 credit worth waiting for?
The new EV tax credit puts EV buyers and automakers between a rock and a hard place. Cheaper EVs are coming, many of them built in North America, but until then, things will be expensive and difficult for EV buyers.
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