As a part of the Biden administration’s attempt to increase sales of electric vehicles to 50% of all automobiles in the United States in less than ten years, the Inflation Reduction Act includes what seem to be considerable rewards for those who purchase electric vehicles.
Is it thus a good moment for motorists to switch to electric vehicles, given the continued rise in the price of gasoline?
Well, it depends. Many electric vehicles (EVs) that are presently eligible for tax credits are not included in the new plan, while some of the most popular models — which are not eligible for government help at this time — would be eligible for the new tax incentive if it were to become law.
Meanwhile, manufacturers are sounding the alarm that a sizeable fraction of vehicles manufactured in the United States may be ineligible for the most beneficial tax credits due to rigorous sourcing criteria (intended to exclude China) for electric vehicle batteries.
The following information on the tax benefits provided by the inflation bill should be known by anybody who is considering purchasing an electric vehicle.
A sizable tax benefit, but with a large asterisk attached to it
The law would provide two different tax credits for new electric vehicles, which may total up to $7,500 per vehicle.
If it is able to fulfil the following requirements, a new electric vehicle may be eligible for a credit in the amount of $3,750: Buyers must have an annual income that is less than $150,000, the vehicle must cost less than $55,000 (or $80,000 for trucks or SUVs), and the vehicle’s final assembly must take place in North America (more if they are married or heads of household).
If the electric vehicle’s battery can fulfil certain pretty strict conditions, the owner is eligible for an extra credit in the amount of $3,750.
Concerns have been raised by the automakers about the possibility that such restrictions may prevent any vehicle sold in the United States from qualifying for the full credit.
There is a selection of batteries available.
Batteries for automobiles must not be manufactured in China in order to be eligible for the full $7,500 credit; rather, they must be assembled in either North America or a nation with whom the United States has a free trade agreement.
The majority of batteries are currently manufactured in China. Given China’s dominance in the market for batteries, automakers have expressed concern that none of the vehicles now available for sale in the United States will qualify for the full credit.
Carla Bailo, CEO of the Center for Automotive Research, stated that “fundamentally, there is no vehicle that meets that [requirement] today, and with the current supply chain of batteries, it is going to be extremely difficult to meet it within the time frames in the bill.”
This was a statement made by Carla Bailo. “Fundamentally, there is no vehicle that meets that [requirement] today.”
Even Tesla, which produces the most American goods thanks to its Gigafactory in Nevada, is not even in the same league as the other companies.
According to John Bozella, CEO of the Alliance for Automotive Innovation, even though there are 72 different electric vehicle models now available for purchase in the United States, none of them qualify for the $7,500 credit because of the sourcing criteria.
The Automotive Association of India (AAI) described the measure as “a huge setback” to the industry’s objective of selling 50% electric vehicles by the year 2030.
The IRS will have the last word.
According to Joe Britton, executive director of the Zero Emission Transportation Association, consumers shouldn’t lose hope since the version of the measure that was approved by the Senate on Sunday isn’t the last word on EV credits (ZETA).
While the bill does provide some general guidelines, it will ultimately be left to the Internal Revenue Service (IRS) to lay out in detail how the agency would evaluate whether vehicles are in compliance with the sourcing standards.
According to the inflation law, the Internal Revenue Service (IRS) has until the end of the year to divulge such facts.
“The problem is that we are unsure how the Internal Revenue Service and the Treasury Department are going to assess [the standards].
They are not in a good position to count every gramme of lithium or cobalt, therefore it is unlikely that they will.
They are not going to count every gramme of lithium or cobalt “Britton stated. “It is worded in the law as a percentage of value, and worth can be assessed in a variety of different ways,” the representative said.
According to Politico’s reporting, ZETA is exerting pressure on legislators to extend the deadlines for manufacturers to comply with the sourcing standards.
There is also the possibility that those sourcing criteria might be temporarily waived by the Treasury Department without any action being taken by Congress.
According to Politico, this is precisely what occurred with the “Buy America” portions of the infrastructure package that was passed the previous year.
Used electric vehicles are now eligible for a tax credit for the first time ever.
Inflation Reduction Act of 2014 contains a tax credit for those who acquire a pre-owned electric vehicle.
In addition, in contrast to new electric vehicles, used electric vehicles are exempt from any and all battery regulations.
If the price of the used electric vehicle is less than $25,000, the buyer may be eligible for a credit of $4,000.
This credit is only available to buyers of used electric vehicles.
According to Bailo, who works at the Center for Automotive Research, “That’s a major issue for middle-class people – it will help them purchase EVs.” EVs are electric vehicles.
According to Scott Case, the head of the research business Recurrent, who spoke with the New York Times, that pricing applies to less than one-fifth of the secondhand electric vehicles that are sold now.
Tesla, GM, Ford models receive a credit extension
At the moment, the electric vehicles produced by Tesla, Ford, and GM that are selling the most well in the United States either do not get a tax credit at all or, in the case of Ford, are set to lose their credit.
This is due to the fact that all three manufacturers have already sold an excessive number of vehicles to be qualified for the $7,000 EV credit that is now in effect.
Because the per-manufacturer restriction of 200,000 units has been removed as a result of the new clean vehicle credit, consumers who purchase one of these automobiles will once again be qualified to receive a refund of at least $3,750 from the federal government.
Another vehicle that might be eligible for the credit is the Chevrolet Bolt, which has a starting price of slightly over $25,000.
The Ford Mustang Mach-E, which has a starting price of around $44,000 and was the second-best selling electric vehicle during the most recent quarter, would also be eligible for the benefit.
When it comes to Tesla, the credit would only be applicable to the least expensive version of the Model 3, which has a starting price of just under $47,000, while all versions of the Model Y SU would be eligible.
Luxury autos and some imported automobiles are not eligible.
The premium vehicles offered by Tesla, such as the Model S and Model X, have a price tag that is too high to make them eligible for the tax credit, thus the legislation does not include them.
Other well-liked premium vehicles, such as the Audi e-tron, Porsche Taycan, and Polestar 2, do not meet the requirements since they are either manufactured outside of North America or have a price tag that is too high.
Due to the fact that they are produced in South Korea, a number of low-priced international manufacturers would not be eligible for the credit, the most notable of which being the Hyundai IONIQ 5 and the Kia EV6.
A boost for purchasers in a roundabout way?
Buyers of electric cars are now confronted with a challenging market, as prices for all types of vehicles are skyrocketing due to challenges with supply chains as well as growing costs of materials such as metal and batteries.
Considering that the typical electric vehicle (EV) still costs approximately $10,000 more than the equivalent traditional vehicle, EVs will need all the assistance they can get in order to achieve the goal set by the United States government of reducing the use of fossil fuels sufficiently to forestall the worst effects of global warming by the middle of the century.
Even though electric vehicle (EV) sales in the United States recently reached 5% of all new car purchases, these sales will need to skyrocket in order to meet the clean transportation goals set by the Biden administration.
To that aim, the IRA contains a plethora of provisions that are designed to make it more affordable and less of a hassle for automobile manufacturers to construct their factories in the United States.
It will be less expensive to produce environmentally friendly automobiles if funding is allocated to programmes involving the mining of battery materials, improved production, and advanced energy.
According to ZETA’s Britton, the savings should eventually make their way down to the customers.
“Certain corporations might look at the law, and perceive the industrial policy as being more useful than the demand the [consumer EV] credit provides,” he added.
“This is something that could be considered by some companies.”
“The car credit is the single most important factor for a customer, but the assistance, support, and industrial policy that this measure offers is quite useful for manufacturers.”