Hi there! With electric vehicles growing in popularity, you might be considering going electric for your next vehicle purchase. I‘ve been reporting on EVs for over five years, and put this guide together to help you understand recent policy changes around EV tax credits along with impacts to automakers and options still available to consumers. I‘ll be structure things as a conversation between friends, outlining key details while trying to simplify some complex policy nuances. Let‘s dive in!
Quick Refresher – What is the Federal EV Tax Credit?
The federal tax credit originally offered consumers a dollar-for-dollar reduction in income tax owed, up to $7,500, when purchasing an eligible electric vehicle. The incentive aimed to boost EV adoption by discounting upfront purchase prices typically higher than comparable gas-powered models.
Over a million consumers have benefited since inception, saving hard-earned money while reducing environmental impact. The credit has succeeded in accelerating electric vehicle production and sales.
However, last year Congress passed new guidelines around EV tax credit eligibility under a push for more localized manufacturing. The requirements take effect this tax season.
New Standards Disqualify Certain Vehicles
The updated qualifications mandate a minimum percentage of battery components and raw materials originate from the U.S or countries with trade pacts. Additionally, final assembly must occur in North America.
| Requirement | Threshold |
|---|---|
| U.S/FTA Sourced Battery Materials | ≥ 50% |
| U.S/FTA Sourced Components | ≥ 50% |
| North American Final Assembly | 100% |
This shakes up the status quo. A Treasury Department report named nine 2022 models instantly made ineligible under the updated guidelines:
No Longer Qualifies
- Audi Q5 e-Quattro PHEV
- BMW 330e
- BMW X5 xDrive45e
- Genesis GV70 EV
- Nissan Leaf
- Rivian R1T
- Rivian R1S
- Volkswagen ID.4
- Volvo S60 Recharge PHEV
Losing eligibility deals a blow to automakers like Nissan who have supplied EVs to budget-conscious consumers for over a decade with the popular Leaf.
Industry-leader Tesla dodges impact having localized manufacturing for years. But other relative newcomers to electrification like Rivian face a major setback relying on overseas parts supply chains.
"[Rivian CEO] Scaringe has complained that tightening regulations on battery sourcing will slow the rollout of EVs in the US at the very moment support is needed for the shift away from fossil fuels," reports CNN Business.
Rivian‘s R1T pickup loses tax credit eligibility as a new EV startup facing supply chain localization challenges
While unfortunate for brands struggling to adapt in the near-term, the goal allows domestic manufacturing infrastructure to scale sustainably.
Surprising Loophole with Vehicle Leases
Now, all the models above can still qualify buyers for the full $7,500 tax credit but only if you lease instead of directly purchasing.
Buried in Section 45W of the Inflation Reduction Act, businesses buying vehicles to lease qualify for credits regardless of sourcing or assembly.
"For vehicles that are leased, the tax credit goes to the leasing company instead of the consumer leasing the car," summarizes CarsDirect. "Since commercial entities are still eligible for the credits, it could push down lease pricing on vehicles no longer qualifying for private owners."
So consumers willing to lease from brands like Nissan or Volvo can effectively tap into the same maximum incentives previously available when buying outright prior to April 2023. Those opting to purchase face an eliminating tax credit driving up effective price.
Leasing continues surging in popularity, accounting for over 30% of all new vehicles financed last year. Leveraging business incentives down to lessees can help keep EVs attainable for more motorists.
Plenty Still Qualify – Especially Top Sellers!
If leasing proves overly complicated or risky for your needs, several stellar electric vehicles retain consumer tax credits:
| Make | Model | Credit Amount |
|---|---|---|
| Tesla | Model 3 | $7,500 |
| Tesla | Model Y | $7,500 |
| Ford | F-150 Lightning | $7,500 |
| Chevrolet | Bolt EV | $7,500 |
| Chevrolet | Bolt EUV | $7,500 |
| Chrysler | Pacifica PHEV | $7,500 * |
*Minivan eligible for full credit if leased instead of purchased
With category leaders like Tesla and Ford retaining eligibility, most mainstream buyers can still benefit from maximum discounts on very capable EVs.
Tesla continues dominating overall EV sales while the F-150 Lightning quickly became America’s best selling electric truck following launch. Business partner Hertz recently put in an order for 100,000 Teslas to upgrade its rental fleet. So you know options exist both for purchasing and travelers wanting to test drive quality EVs.
Pre-Owned EVs Expand Available Inventory
If you want extra savings beyond the purchase tax credit, used electric vehicles provide another great route thanks to a separate federal incentive up to $4,000. As production scales, more units entering resale channels makes pre-owned pricing very attractive.
Consumer Reports tracks used EV list prices dropping at twice the rate of gas cars in certain segments. And with fewer mechanical components, overall maintenance saves owners thousands over a vehicle‘s lifetime even after the battery eventually needs replacement.
Qualifying for used EV tax credits mainly requires purchasing through an authorized dealer versus private seller. Minimum requirements include:
- $25,000 or less sales price
- 2+ years old from model year
- Primarily operated in the U.S.
- Meet weight and battery size specifications
- Eligible for one-time use only
I took advantage of used EV credits buying a 3 year old Nissan Leaf last fall. Saved about $10,000 off the original MSRP and qualified for a $2,500 tax credit thanks to the affordable pricing. Absolutely love driving electric now!
The Road Ahead
While the fast-changing policy landscape shakes up the status quo, compelling EV options persist for new buyers thanks to high volume models retaining eligibility. Pre-owned inventory coming off lease makes adoption even more accessible long-term.
Automakers initially impacted will adapt sourcing and manufacturing strategies to qualify vehicles again soon. Continued bipartisan cooperation around electrification goals leads me to believe more consumer incentives over time, not less, will further accelerate mass adoption.
Let me know if any other questions come up around shopping for or owning an electric vehicle. Happy to chat more about my experience and share resources I reference tracking the industry trends closely.
Take care,
Michael
