EV tax credits will be available again for popular brands if the law is passed

EV tax credits will be available again for popular brands if the law is passed

  • The 2022 Inflation Reduction Act currently under discussion in Washington would spend $369 billion on climate change and energy security, including big changes to the electric vehicle tax credits. If possible, of course.
  • What matters to car buyers is that there would be more money for more electric vehicles: away would be the 200,000 per automaker limit that GM, Tesla and Toyota have already reached. Used vehicles would also qualify for a $4000 credit for the first time.
  • The bill would also encourage automakers to use batteries that are sourced and assembled in North America, limiting the value of importing electric vehicles from China. It would also establish requirements for the qualification of electric vehicles, with price and component origin among the criteria.

    The surprise political revival of some parts of the Build Back Better plan brings with it the potential for massive federal action on climate change, drug costs and corporate taxes. The bill, now packaged as the Inflation Reduction Act of 2022 (IRA), would reduce the federal deficit by over $300 billion, according to President Joe Biden.

    It is the IRA’s estimated $369 billion addressing climate change and energy security spending that directly impacts the vehicles we buy and drive. The text of the bill isn’t final and the Senate hasn’t voted on it yet, but we can at least see what would change in the automotive world if it were passed as is. Here’s a summary of how the IRA would impact the lives of car buyers. In short, middle- and low-income buyers will benefit, as will automakers who build their electric vehicles in North America.

    Changes for buyers

    The biggest change for the auto industry is that the IRA is revising how the EV tax credits work at the federal level. Currently, the credits can only be used to purchase a new electric vehicle and are limited to 200,000 qualifying purchases per automaker before expiry of credits worth up to $7,500 per vehicle.

    Under the IRA, the loans would not be tied to an automaker but would continue through December 31, 2032 for all qualifying EVs. This change most obviously helps General Motors, Tesla and Toyota, as they are the three automakers that have either already phased out tax credits or are now phasing them out. President Biden, in comments on the bill, emphasized that the qualifying factor for a $7,500 tax credit is “if those vehicles were made in America.”

    Car buyers could also receive the credit as a rebate at the time of sale, either as a down payment or as a discount rather than having to wait to file their taxes.

    The bill also sets income caps on who can receive the loan. Anyone earning more than $150,000 per year (single applicant) or a family earning more than $300,000 would not be eligible. There will also be limits on how expensive a vehicle can be to qualify, with vans, trucks and SUVs now capped at $80,000 MSRP, while all other vehicles are priced at $55,000 are limited.

    For the first time, used electric vehicles would be eligible for a rebate of either $4,000 or 30 percent of the vehicle’s retail price, whichever is lower. The maximum price for a qualifying used EV is $25,000 and must be at least two years old. There are also income limits for used sales, but these are set at $75,000 (retailers) and $150,000 (collective dealers).

    The bill also changes the definition of what types of vehicles can receive the credit from a “qualified plug-in electric vehicle” to a “clean vehicle,” opening the door to hydrogen or other powertrains that are considered equal Can purely battery-powered electric vehicles from a federal tax credit perspective.

    Changes for manufacturers

    Finally, and it will be some time before this becomes law, the law requires automakers to use “critical minerals” in their batteries that have been extracted and processed in North America or a country with which the US has a trade agreement . The bill requires qualified clean vehicles to use a minimum level of such minerals, starting at 40 percent for vehicles commissioned before January 2024 and then increasing by 10 percent per year until it reaches 80 percent for vehicles commissioned after January 2024 31 December to be put into operation. 2026. Similarly, all qualifying clean vehicles must have their battery components manufactured or assembled in North America at a similar increasing rate, starting at 50 percent for vehicles entering service before January 1, 2024, and increasing to 100 percent beginning in 2029. Expect to hear about many more battery gigafactories springing up across the US if this becomes law.

    As for the politics of the bill, given that the bill was revived through a deal with Majority Leader Chuck Schumer (D-NY) and Senator Joe Manchin (D-WV), there is hope on Capitol Hill that the bill passed with all 50 Democratic Senators voting in favor, allowing Vice President Kamala Harris to vote if all 50 Republicans voted against, as expected. Schumer said last week that he would put the IRA to a vote this week.

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