Electric vehicles eligible for the new electricity tax credit

The proposed rules come into effect for cars put into service after December 31, 2022 and are valid until 2032.

Among other provisions, the new bill:

• Offers a new tax credit of up to $4,000 on used EVs put into service after December 31, 2023.

• Removes the 200,000 vehicle cap on tax credits that made electric vehicles and plug-in hybrids from Tesla, GM and Toyota ineligible for tax credits.

• Eliminates today’s tax credits for expensive electric vehicles, such as the Hummer EV, Lucid Air, and Tesla Model S and Model X.

• Eliminates tax credits for unassembled vehicles in North America, including the BMW i4, Hyundai Ioniq 5, Kia EV6 and Toyota bZ4X.

But, more importantly, the bill also limits the full New Electric Vehicle Tax Credit to vehicles that contain battery minerals from countries with which the United States has a free trade agreement or recycled in North America, and with battery components from North America.

If minerals or components are sourced from “foreign entities of concern,” including China or Russia, the vehicle will not qualify for any tax credit. A 2022 analysis of the International Energy Agency’s electric vehicle supply chain shows that the vast majority of minerals, components and battery cells currently come from China. This restriction does not apply to used vehicles.

“Electric vehicle tax credit requirements will make most vehicles immediately ineligible for the incentive,” wrote John Bozzella, president and CEO of the Alliance for Automotive Innovation, a trade group of automobile industry.

Analysis by the Congressional Budget Office shows that the bill provides $85 million in new electric vehicle tax credits for fiscal year 2023, which only translates to about 11,000 new vehicles sold with $7,500 full credits. This number increases to around 60,100 electric vehicles in 2024.

By comparison, about 630,000 battery-electric and plug-in hybrid vehicles were sold in the United States in 2021, a number that must increase if the United States is to meet its greenhouse gas reduction goals. These goals require that half of all new lightweight cars sold in 2030, or millions of vehicles, be zero-emission vehicles.

“It’s good that he’s focused on building a processing and manufacturing base here, but ultimately it’s going to be very complex to implement and explain to consumers,” says Brett Smith, director of technology at the Center for Automotive Research.

As for used vehicles, the CBO estimates that 24,750 used electric vehicles will be eligible in 2023, and roughly the same number in 2024.

Despite this initial confusion, the bill is a major accomplishment overall, says Quinta Warren, PhD, associate director of sustainability policy for Consumer Reports.

“This bill has huge potential to be a game-changer for consumers and clean transportation,” she says. “Our research shows that a growing number of consumers are interested in buying electric vehicles, but many have questions about cost and charging, and this bill would help reduce some of those barriers.”

The bill passed the Senate and is expected to be passed by the House and signed into law by President Biden this week.

A CR survey shows that more than half of car buyers would be more likely to buy an electric vehicle if a tax credit lowered the price. (You can find out which vehicles are currently eligible here in CR’s EV Incentive Finder.)

Until now, buyers of electric and plug-in hybrid cars could get up to $7,500 in federal tax credits as long as the manufacturer didn’t sell more than 200,000 qualifying vehicles. Once an automaker reached that point, the credit began to disappear, which is why Tesla and GM vehicles have not qualified for a federal tax credit for several years. Toyota recently reached this sales milestone and will also see its tax credits decrease.

Chris Harto, CR’s senior policy analyst for transportation and energy, says the provisions set out in the bill could slow electric vehicle sales in the short term, but that’s a benefit ” massively positive” for the adoption of electric vehicles as a whole.

“Longer term, automakers will adapt, bring their electric vehicle and battery manufacturing supply chains to North America, and ensure that American taxpayer dollars support American jobs,” he said. he. “While some currently eligible vehicles will become ineligible, these tax credits would eventually run out – and probably quite quickly for the most popular vehicles – so the benefit would have been short-lived.”

Ultimately, the new rules will shift electric vehicle manufacturing from China to North America, Smith says, but that shift could take time. Manufacturers are already making significant investments in building batteries in the United States, but supplying these factories with raw materials from North America could remain an issue, especially given China’s dominance in the sector. mining. “Generally it’s going to be hard to create the processing here and really hard to create the mining here,” he told CR.