The federal electric vehicle tax credit just underwent sweeping changes that create confusion and uncertainty for automakers and EV buyers alike. Strict new requirements around domestic manufacturing and battery sourcing instantly disqualified some of the highest selling plug-in models.
But why did policymakers overhaul incentives growing electric vehicle adoption? Which specific brands and buyers stand to lose the most? And what‘s the outlook for EV tax credits moving forward?
I‘ll analyze the real-world impacts using sales data and industry expertise. You‘ll understand which models still qualify, what automakers plan production shifts, and how state-by-state differences change equations for buyers. breaking down the electric vehicle landscape reshaped by a revised federal tax credit approach.
Understanding the Previous Federal EV Tax Credit
First let‘s review how the incentive to spur EV adoption originally worked…
The federal electric vehicle tax credit began in 2009 as up to $7,500 off owners‘ personal income tax bills for purchasing a qualified plug-in electric vehicle. The credit amount phases down once an automaker sells over 200,000 combined electric cars and trucks.
Over 1.8 million clean vehicle credits helped drive exponential growth in yearly EV sales, reaching over 800k in 2022. But policymakers aimed to further shift production tied to that sales growth stateside…
Policy Overhaul Focused on Domestic Manufacturing
So in August 2022, the Inflation Reduction Act changed eligibility terms in the name of onshoring jobs. New requirements mandated:
- Final assembly occurring in North America
- A progressively higher percentage of battery components sourced from the U.S. or free trade partners
- Price caps – $55,000 for cars, $80,000 for SUVs and trucks
- Income eligibility limits – single filers making up to $150k, joint filers up to $300k
The impacts of these seismic shifts began instantly this tax season. Let‘s analyze which automakers took the biggest hits.
EV Sales Leaders Saw Models Disqualified
The most popular electric SUVs and sedans from brands leading U.S. EV sales saw credits slashed or vanish entirely this tax season.
Tesla, Ford, BMW and Audi ranked as the top four electric vehicle sellers last year. But extensive analysis of retail registrations reveals the models taking the biggest tax credit hits.
BMW – No Longer Any Qualified Vehicles
Both BMW electrified SUV and sedan models that were previously eligible for credits became entirely disqualified.
Over 15,000 BMW plug-in hybrid electric vehicles received EV tax credits last year. But now neither the:
- BMW X5 xDrive45e PLUG-IN SUV nor
- 330e plug-in hybrid sedan
meet revised battery component sourcing or manufacturing stipulations.
The X5 actually ranked as the 9th best selling plug-in vehicle in 2022. Losing eligibility represents a major setback for one of BMW‘s highest selling PHEVs.
| Model | 2022 Sales | 2021 Sales | % Change |
|---|---|---|---|
| BMW X5 xDrive45e | 15,733 | 22,515 | -30% |
| BMW 330e | 8,071 | 14,178 | -43% |
BMW has not announced any plans to shift production of either vehicle to become compliant with new guidelines around domestic sourcing or assembly.
So as of now, none of their offerings remain qualified for federal tax credits – which could substantially dampen sales momentum in such a competitive market.
Rivian – Both Flagship EVs Now Ineligible
The electric adventure startup saw its first two models go from fully qualified to completely losing federal tax credits.
Rivian ranked third in EV sales last year after launching well-received all-electric:
- R1T pickup
- R1S SUV
However, Rivian models are currently exclusively manufactured at the company‘s Normal, Illinois plant which contains battery cells imported from South Korea.
So neither newly popular model meets revised rules around domestic content or preferred regional battery supply chains.
| Model | 2022 Sales | Waitlist |
|---|---|---|
| Rivian R1T | 20,332 | ~98,000 |
| Rivian R1S | 5,987 | ~78,000 |
This is a major setback for an automaker aiming to scale up production capacity to meet strong reservation demand.
Rivian hasn‘t announced any plans to shift manufacturing or battery sourcing to regions that would comply with the new stipulations. So both their truck and SUV currently stand to receive zero federal tax credits – which could jeopardize growth plans.
Audi, Volvo & Genesis Only Qualified Vehicles Lost Eligibility
Other luxury brands aiming to grow EV sales like Audi, Volvo and upstart Genesis had single models previously eligible for credits become newly excluded.
- The Audi Q5 TFSI e plug-in hybrid SUV
- Volvo‘s S60 Recharge plug-in hybrid sedan
- Genesis‘ first-ever EV – the Electrified GV70 performance SUV
All formerly qualified for EV tax credits before the policy change. But now fall short of latest battery component stipulations around sourcing or free trade assembly.
These were the only BEV or PHEV offerings from each brand that were receiving credits. So while the impact is less extensive than BMW or Rivian‘s full product line, losing their lone qualified models still represents a blow.
Models Now Capped at $3,500 Partial Federal Credit
Beyond outright losing qualification, some vehicles can now only receive reduced federal EV tax credits.
10 plug-in hybrid and electric models from Ford, Jeep and other brands are impacted with a new $3,500 maximum (down from $7,500).
To earn the full $7,500 credit, vehicles must meet rules around BOTH:
- Battery component sourcing
- North American assembly content
These vehicles comply with the latter (like containing >50% U.S./Canadian/Mexican content) but still rely partly on overseas battery supply chains. So they remain eligible for partial credits, half what buyers previously would earn.
The two brands leading U.S. plug-in hybrid sales last year – Ford and Jeep maker Stellantis – took significant partial eligibility hits.
These popular electrified models can now only qualify buyers for $3,500 federal credits (previously $7,500):
- Ford Escape PHEV
- Ford E-Transit commercial van
- Jeep Wrangler 4xe
- Jeep Grand Cherokee 4xe
Lincoln and Tesla models round out the list now capped at $3,500 incentives.
Losing half the tax credit for in-demand vehicles still topping annual EV sales represents a meaningful hit. And risks slowing adoption by price-sensitive buyers who these brands attract.
Still Fully Qualified – Large EVs Including Cybertruck
Despite substantial losses of eligibility across many makes and models, some electric vehicles qualify unchanged for maximum $7,500 federal tax credits.
Full-sized trucks and SUVs from market leaders Ford, GM and Tesla make the cut based on meeting all manufacturing conditions:
- Ford F-150 Lightning
- GMC Hummer EV
- Chevrolet Silverado EV
- Tesla Cybertruck (expected)
- Tesla Model Y Performance
These vehicles should continue seeing strong demand with the full tax credit amount preserved.
Plus smaller BEVs like the:
- Chevy Bolt EUV
- Nissan Leaf
- Tesla Model 3 RWD
round out options still eligible for the full $7,500 federal credits.
However, buyers need to ensure trim specifications and retail prices also adhere to newly implemented caps. And income eligibility rules further restrict exactly who can claim credits when filing taxes.
Automaker Production Shifts Influenced by Credit Change
Losing qualification status represents substantial setbacks for leading EV sellers. But some manufacturers signaled intentions to eventually shift production regions and partners to meet new stimulus rules.
Most vocal was VW CEO Scott Keogh telling press:
"We are working with suppliers to meet regulations around battery components and aim to have our flagship ID.4 model re-qualified."
Industry experts think Volkswagen, Tesla and upstart EV brands focused on scaling sales could make changes to restore access to credits influencing buyer decisions.
Examples include:
- Building US battery component production plants
- Sourcing materials from free trade partners
- Ensuring final assembly occurs domestically
"Over the next few years, we anticipate more EV models will become eligible again as companies reconfigure production," shared Rachelle Eliason, Senior Automotive Analyst at Wells Fargo.
So while currently disqualified, brands losing credits short term may eventually shift strategies long term – especially if sales meaningfully lag without tax savings.
Purchase Advice on Disqualified Vehicle Models
Losing thousands in potential federal tax credit savings may understandably give some EV shoppers pause. So what should you consider before buying a newly ineligible vehicle?
-
Model Availability – Hot EVs like the Ford Escape PHEV still top sales charts based on performance, brand familiarity. If you need a specific vehicle soon, limited options exist even without credits.
-
Pricing – Automakers may cut prices on models losing credits to keep sales momentum vs internal profit targets. Shop around for deals helping offset lost tax savings.
-
Total Cost of Ownership – Lifetime fuel and maintenance savings for EVs still outweigh lost one-time tax credits for many buyers. Carefully run cost calculations before abandoning a planned purchase.
-
State/Local Incentives – Some states and utilities offer additional electric vehicle incentives unaffected by federal changes. Evaluate all options where you live before ruling out a desired model.
"If you need a new car soon, don‘t abandon a preferred EV purchase solely due to lost federal tax credits without first exploring pricing, availability and local incentives," recommends Brian Moody, Executive Editor at Autotrader.
How Car Dealers Explain Shifting Incentives
The abrupt loss of tax credits on previously qualified models also leaves dealers in a difficult position explaining changes to buyers.
Most dealerships are still adjusting their own understanding of INCENTIVE policy changes and the impacts on showroom traffic and sales. Some report customer confusion and even frustration around eliminating savings they expected and factored into purchase plans.
Dealers also face a time crunch around clearly communicating changes before tax season ends. With less than 75 days remaining, shoppers need simple explanations around what vehicle purchases can still lower tax bills – or seek professional guidance from accountants.
The Outlook for Future EV Tax Credits
Industry analysts think more EV models meeting new qualification rules will become available within 1-3 years. But the upfront sales impacts hurt brands counting on credits to drive growth.
"Removing incentives right when many automakers invested heavily in ramping up EV production seems shortsighted," argues Karl Brauer, Executive Analyst at iSeeCars.com. "There could be a drop in sales until compliant new offerings emerge."
However, the Inflation Reduction Act successfully pushes more high-paying manufacturing and engineering jobs tied to a fast-growing EV future into the United States.
So while the transition brings confusion and uncertainty over federal tax credits in the short term, the long term trajectory still points to further exponential EV adoption.
Just likely with production shifts towards models reflecting policymaker priorities like domestic sourcing and assembly.
