A sweeping climate and energy bill that includes a dramatic overhaul of the national electric vehicle tax credit program has received final congressional approval and is on its way to the White House for signing. of President Biden.
The Cut Inflation Act of 2022 Clean Vehicle Tax Credit program is both more inclusive and more restrictive than the current program, which offers up to $7,500 in tax credits. The new program continues the credit, but with a different rollout and eligibility requirements.
“The $7,500 credit may exist on paper, but no vehicles will qualify for this purchase for the next few years,” John Bozzella, chief executive of the Alliance for Automotive Innovation, said in a statement.
The industry group estimated that 70% of electric and plug-in hybrid vehicles eligible for the existing tax credit would lose their eligibility in 2023 under strict battery content rules and vehicle price caps.
“Almost all of our vehicles would not be eligible for incentives” until the company’s low-cost models are introduced several years from now, said James Chen, vice president of public policy at electric truck maker and Rivian. of SUVs. Its initial models, though built in the United States, start at more than $100,000, more than 25% above the measure’s price cap for trucks.
Lots of limits
Here are the price limits for qualifying cars and trucks and the income limits for buyers who want the $7,500 credit:
- Eligible cars cannot have an MSRP above $55,000. MSRPs of qualifying trucks, vans and SUVs cannot exceed $80,000.
- The income limits for new vehicle buyers are $300,000 for those filing joint federal income tax returns, $225,000 for heads of household and $150,000 for individual filers.
- Vehicles must be assembled in North America to qualify, and the credit applies to vehicles built after December 31, 2022.
As battery content restrictions become even more restrictive after 2023, no EVs may be eligible for the credit in a few years unless manufacturers adjust prices, build factories to assembly in North America and find new approved sources for their battery materials.
Here’s more information about the new plan that sets tough new restrictions on where battery materials for electrified vehicles come from and where qualified vehicles can be assembled:
- An eligible vehicle’s battery must contain certain levels of critical minerals, such as lithium, from North America or one of the countries with which the United States has free trade agreements. Minimum acceptable levels start at 40% – by cost – in 2023 and increase by 10% per year until reaching 80% in 2027.
- Non-mineral battery components in qualifying vehicles must be sourced from North America or free-trade countries, at increasing levels starting at 50% by cost in 2023 and reaching 100% in 2029.
While the new program makes it harder for today’s electric and plug-in hybrid vehicles to qualify for the tax credit, it also increases the number of automakers whose vehicles might qualify and broadens the definition of vehicle types. who may be eligible.
Companies like General Motors and Tesla, which hit the 200,000 sales threshold in 2018, are eligible again as they remove the cap. Now the credit is applied at the time of sale, not at tax time. It also sets the tax credit for all eligible new vehicles at a fixed maximum of $7,500 rather than basing it on battery size as with the current program.
The program transforms today’s “plug-in vehicle” credit into a more comprehensive “clean vehicle” credit, opening it up to fuel cell electric vehicles and future alternative fuels that could compete with battery electric power.
It also establishes credits for used electric vehicles and other qualifying clean vehicles, a first.
- For clean used vehicles, the tax credit is equal to 30% of the price of the vehicle, with the amount of the credit not exceeding $4,000.
- Eligible used vehicles must be purchased from a dealer, must be priced at $25,000 or less, must be purchased by an individual (not a business), and must be at least 2 years old at the time of purchase. purchase.
- The income limits are $150,000 for joint filers, $112,500 for heads of households and $75,000 for single filers.
- Clean used vehicles are not required to meet new vehicle country of origin requirements.
It also clarifies that buyers who have a binding written contract for the purchase of an eligible vehicle — signed before the president signed the new law — can claim a tax credit under the current program’s rules even if the vehicle will not be delivered until the new rules take effect.
Most automakers will be impacted, at least in the early years of the program. Until a vast new North American supply and manufacturing base is established, consumers will find fewer new clean vehicles on the market that qualify for the tax credit.
The program is complex and not all details have been ironed out – the measure gives regulators until the end of 2022 to fill in the blanks.
But it’s clear that consumers interested in electric vehicles will initially see fewer models with tax credits that lower their cost.
Their battery contents could change things, but depending on where they’re assembled and their price, here’s which of 72 models eligible today might qualify in 2023 under the new rules:
The 10-year program ends on December 31, 2032. By then, many industry analysts believe electric and other clean vehicles will have achieved the economies of scale needed to make them competitive with vehicles. internal combustion engines by or before that date and will no longer need financial incentives to attract consumers.
Teslas accounted for 70% of all electric vehicle sales in the United States in 2021 without eligibility for the tax credit to help it and could do even better with restored eligibility. But many Teslas are priced above the maximum established in the new program – only the Model Y small crossover and the base version of the Model 3 sedan would be eligible.
Most GM-qualified vehicles, on the other hand, are priced to qualify under the new rules — the massive GMC Hummer EV and Hummer electric pickup truck are exceptions.
Toyota’s qualifying models, including its Mirai fuel cell sedan, are all under the price caps, but none are assembled in North America, one of the new requirements.
Build it here
Proponents acknowledge that the plan will initially reduce the number of vehicles that will qualify for a tax credit, which many EV proponents believe will hinder momentum.
But the restrictions are necessary, say proponents, to encourage the development of a North American electric vehicle supply chain and ultimately to eliminate dependence on foreign countries, particularly China. , for essential minerals needed to produce batteries and electric motors.
Many of the major producers of these minerals, particularly nickel, cobalt and manganese, are not approved sources under the new program, and only two of the four major lithium-producing countries are approved.
Passing the measure sets the U.S. on “…an ambitious path to reducing emissions that embraces domestic manufacturing and technological innovation that makes us all better,” the Zero Emissions Transportation Association said. in a Twitter post after the bill was narrowly approved by the Senate on August 7.
President Biden has said he will sign the Cut Inflation Act, which includes the electric vehicle tax credit plan. He cleared the Senate on a 51-50 vote to the party line, with the vice president casting the deciding vote. The bill passed the House Friday on a vote of 220 to 207 along party lines.