The Inflation Reduction Act comes with generous benefits for electric vehicle buyers, with the U.S. in less than a decade. It’s part of the Biden administration’s effort to halve EV sales of all cars in the U.S. So, with gas prices still high, is now a good time for motorists to go electric?
well it depends. Many EVs that currently qualify for tax credits have been left out under the new bill, while some of the most popular models – which do not qualify for government assistance today – will be eligible for the new tax incentives. Meanwhile, automakers have warned that a large proportion of U.S.-made cars will miss out on the most generous credits due to stringent sourcing requirements (designed to exclude China) for EV batteries.
Anyone interested in buying an electric car should be aware of the tax breaks under the inflation bill.
A generous tax credit — with a big asterisk
The bill introduces two credits for new EVs, up to $7,500 per car. A new electric vehicle may qualify for a credit of $3,750 provided it meets certain conditions: its final assembly must be in North America; It must be priced under $55,000 ($80,000 for a pickup or SUV); and buyers must have an annual income of less than $150,000 (more if they are married or head of household).
An additional credit of $3,750 applies if the EV’s battery meets certain stringent requirements. Automakers are raising concerns that these requirements would render full credit unavailable for any US car.
Not all batteries are included
To qualify for the full $7,500 credit, the car battery must be assembled in North America or a country with which the U.S. have a free trade agreement – they cannot be made in China, which makes most of the batteries today. Indeed, car makers have raised the alarm that no car currently in the US market will get full credit, given China’s importance in the battery market.
Carla Bailo, CEO of Center for ” Automotive Research. “Even Tesla, which has the largest amount of American content, with the Gigafactory in Nevada, doesn’t come close.”
According to John Bozzella, CEO of the Alliance for Automotive Innovation, while there are 72 EV models for sale in the US today, none of them are eligible for a $7,500 credit under sourcing requirements. AAI called this requirement “a major setback” to the industry’s goal of 50% EV sales by 2030.
To qualify for the full $7,500 credit, the car battery must be assembled in North America or a country with which the U.S. have a free trade agreement – they cannot be made in China, which makes most of the batteries today. Indeed, car makers have raised the alarm that no car currently in the US market will get full credit, given China’s importance in the battery market.
Carla Bailo, CEO of Center for ” Automotive Research. “Even Tesla, which has the largest amount of American content, with the Gigafactory in Nevada, doesn’t come close.”
According to John Bozzella, CEO of the Alliance for Automotive Innovation, while there are 72 EV models for sale in the US today, none of them are eligible for a $7,500 credit under sourcing requirements. AAI called this requirement “a major setback” to the industry’s goal of 50% EV sales by 2030.
The IRS will have the final say
Consumers should not be disappointed, however, the version of the bill passed by the Senate on Sunday is not the final word on EV credits, said Joe Britton, executive director of the Zero Emissions Transportation Association (ZETA).
While the law draws broad strokes, it will ultimately be up to the IRS to explain how the agency will determine which cars meet sourcing requirements. According to the inflation bill, the IRS has until the end of the year to release those details.
“The challenge is we don’t know how the IRS and the Treasury are going to measure [the requirements]. They’re obviously not going to count every gram of lithium or cobalt — they’re not well positioned to do that.” are,” said the Briton. “In the bill, it is written as a percentage of the value, and value can be measured in many different ways.”
Politico reported that ZETA is pressuring lawmakers to give automakers longer deadlines to comply with sourcing requirements. It’s also possible that the Treasury Department could temporarily waive those sourcing requirements without Congressional action. That’s what happened with the “Buy America” provisions of last year’s infrastructure law, Politico said.