EV tax credits for popular brands will return if the law is passed

  • The Inflation Reduction Act of 2022, currently under discussion in Washington, would spend $369 billion on climate change and energy security, including major changes to the electric-vehicle tax credit. If it passes, of course.
  • What matters to car shoppers is that there will be more money for more electric vehicles: there will be a 200,000-per-automaker limit, which GM, Tesla and Toyota have already reached. Used vehicles will also qualify for a first-time $4,000 credit.
  • The bill would also encourage automakers to use batteries that are sourced and assembled in North America, limiting the cost of importing EVs from China. It will also set the requirements for EVs to be eligible, with the price and origin of the components among the norms.

    The surprising political revival of parts of the Build Back Better plan has brought with it the potential for massive federal action on climate change, drug costs and corporate taxes. Now packaged as the Inflation Reduction Act of 2022, or IRA, the bill would reduce the federal deficit by more than $300 billion, according to President Joe Biden.

    That’s an estimated $369 billion in IRAs that address climate change and energy security spending that will have a direct impact on the vehicles we buy and drive. The text of the bill isn’t final yet, and the Senate hasn’t voted on it yet, but we can at least see what will change in the automotive world if it passes. Here is a summary of how an IRA will affect the lives of car buyers. In short, middle- and low-income buyers benefit, as do automakers in North America who make their EVs.

    change for buyers

    The biggest change for the auto industry is that the IRA reforms how the federal electric vehicle tax credit works. Right now, the credit can only be applied to the purchase of a new EV and is limited to 200,000 qualifying purchases per vehicle manufacturer before the credit, up to $7500 per vehicle, begins to be phased out.

    Under an IRA, credits will not be tied to any automaker, but will continue for all qualifying EVs until December 31, 2032. The change most obviously helps General Motors, Tesla and Toyota the most, as they are the three automakers that have either already exhausted tax credits or are now phasing them out. President Biden emphasized in remarks about the bill that the qualifying factor for the $7500 tax credit is “if those vehicles were made in America.”

    Car buyers will be able to receive a credit in the form of a discount at the time of sale, either as a down payment or as a reduction in value, instead of needing to wait until they file their taxes.

    The bill also sets an upper-income limit on who can receive the credit. Anyone earning more than $150,000 per year (single filer) or a family earning more than $300,000 will not be eligible. The upper price limit on vehicles, trucks and SUVs is now set at an $80,000 MSRP, while all other vehicles are limited to a price of $55,000, there will also be limits on how expensive the vehicle can be.

    For the first time, used EVs will be eligible for a discount of either $4000 or 30 percent of the sale price of the vehicle, whichever is less. An eligible used EV has a maximum price of $25,000 and must be at least two years old. Revenue limits also exist for used sales, but they are set at $75,000 (single filers) and $150,000 (joint filers).

    The bill also changes the definition of what types of vehicles can receive credit, from “qualified plug-in electric drive motor vehicles” to “clean vehicles”, opening the door to hydrogen or other powertrain types. Battery-only EVs from a federal tax-credit perspective.

    change for manufacturers

    Finally, and it will take some time to be implemented, the bill requires automakers to use “critical minerals” for their batteries that were extracted and processed in North America or the country with which the U.S. There is a trade agreement. The bill requires qualified clean vehicles to use a minimum amount of such minerals, starting at 40 percent for vehicles put into service before January 2024, then increasing annually to 10 percent until It does not reach 80 percent for vehicles placed in service after December 31. 2026. Similarly, all eligible clean vehicles are required to manufacture or assemble their battery components on a similar increasing scale in North America, starting at 50 percent for vehicles put into service before January 1, 2024, and Starting in 2029, increases to 100 percent. Expect to hear about a lot more battery gigafactories around 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 Will pass with all 50. Democratic senators voted in favor, allowing Vice President Kamala Harris to vote if all 50 Republicans vote against, as expected. Schumer said last week that he would bring the IRA up for a vote this week.

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