Impact of Inflation Reduction Act on Electric Vehicle Tax Credits – TIME | Vette Leader

TThe push to incentivize EV ownership just got a little tougher. Most electric vehicles no longer qualify for the full $7,500 tax credit that has helped millions of buyers reduce the cost of switching from gas-powered vehicles to electric vehicles over the past decade.

Changes to the language of the tax credits went into effect Tuesday afternoon when President Joe Biden signed into law the Inflation Reduction Act, which includes a series of federal regulations aimed at keeping electric vehicles affordable and limiting China’s influence on the supply chain. Under the new law, to qualify for tax credits, buyers must have income below a certain threshold, the vehicle they select must not exceed a certain price, and the vehicle’s battery must be made in North America. Auto analysts say these requirements will likely prevent some buyers from getting tax credits, especially those who are wealthier, but the new legislation is likely to encourage lower-income households to buy electric vehicles in the near future.

“This will change the way total cost of ownership is calculated,” said Kevin Roberts, director of industry insights and analytics at CarGurus. “If you’re looking for that $7,500 tax credit, this law could change the type of vehicle you want to buy.”

What the legislation says about electric vehicle tax credits

The most important provision is that electric vehicles must contain a battery built in North America using minerals mined or recycled on the continent to qualify for the tax credit. Legislation dictates that by 2024 at least 50% of EV batteries must be from the US, Canada or Mexico, with that number increasing to 100% by 2028. That could pose a challenge for some automakers as the vast majority of minerals, components and battery cells are currently sourced from China.

When lawmakers drafted the climate and energy package, one of the priorities was to keep China out of the supply chain. The legislation aims to boost US production of commodities like iron and phosphate, rather than relying on batteries high in nickel and cobalt imported from China.

Additionally, under the new law, EV buyers cannot receive the credit if they have taxable income over $150,000 or $300,000 for joint applicants. The legislation also imposes price limits on vehicles to qualify for the loan, and penalizes more expensive electric vehicle manufacturers like Lucid and Rivian with a cap of $55,000 for sedans, hatchbacks and station wagons and $80,000 for trucks, SUVs and vans .

Continue reading: What Experts Have To Say About How Valuable The Green Anti-Inflation Bill Subsidies Will Be

Those price-related restrictions could prompt some automakers to lower the sticker price of their EVs below $55,000 or $80,000 once supply chain disruptions ease and more vehicles appear on dealer lots, Roberts says. But that all depends on how expensive the raw materials and new factories for the batteries made in North America are for automakers.

Currently, the average price of an electric vehicle is around $66,000, according to the Kelley Blue Book, although some models cost half that amount. A new Nissan Leaf, for example, starts at $27,800.

Which cars qualify for EV tax credits?

Given the new restrictions, the vast majority of EVs are not eligible for the full $7,500 tax credit. Only about 15 EV models currently sold in the US are expected to meet the pricing requirements, and the companies that make them still have a number of political and financial hurdles to overcome in order to establish a domestic supply chain commensurate with made-in – North American battery sourcing requirements – meaning these models may take a few years to become compliant.

A Consumer Report list includes nearly a dozen vehicles that would meet the new credit requirements if their batteries were primarily sourced from North America, according to the legislation: Cadillac Lyriq, Chevrolet Blazer EV, Chevrolet Bolt, Chevrolet Bolt EUV, Chevrolet Silverado EV, Ford F- 150 Lightning, Ford Mustang Mach-E, Nissan Leaf, Rivian R1S, Rivian R1T, Tesla Cybertruck, Tesla Model 3, Tesla Model Y and Volkswagen ID.4.

However, buyers should note that depending on the vehicle type, they may need to select models with less premium equipment in order to stay under the respective price caps. A Rivian R1S, for example, starts at $72,500 but can cost much more than $80,000 with upgrades like advanced speakers or perforated seats.

According to John Bozzella, CEO of the Alliance of Automotive Innovation, electric vehicles may take years to meet battery requirements because the type of infrastructure needed to produce North American batteries on a scale similar to China’s is not currently in place. “The $7,500 credit may exist on paper, but no vehicles will qualify for this purchase incentive for years to come,” he said in a statement. “This will be a major setback to our collective goal of 40 to 50 percent EV sales by 2030.”

How much money can you save on electric vehicles?

Buyers who meet the income requirements and select an EV that meets battery and price restrictions are eligible for up to $7,500 from the government in the form of a tax credit. The program began in 2010 to reduce the cost of clean energy vehicles and is available for both pure electric vehicles and plug-in hybrids.

However, the amount of credits a vehicle is eligible for depends on the size of its battery. The base incentive is $2,500 and increases by an additional $417 per 5kWh battery, up to a total of $7,500. A base-level Chevrolet Bolt EV starting at $31,500 with a 65kWh battery would cost $24,000 after deducting the tax credit.

The amount of tax credits an individual receives also depends on how much tax they owe; If the car someone is buying is eligible for up to $7,500 in tax credits, they must owe that amount or more to receive the full credit

The new legislation also targets used electric vehicles, which qualify for a credit of up to $4,000 for the first time if the used vehicle costs $25,000 or less and is more than two years old. Used vehicles do not have to meet Made-in-America requirements. “That could be a game changer later on,” says Roberts, although buying an EV for under $25,000 is “nearly impossible right now” due to high demand. The median price of a used car is $30,863, but that number jumps to $67,134 for used Teslas, according to CarGurus data. Over the next 10 years, when the legislation is in place, auto analysts are predicting that used electric vehicles will fall to $25,000 in price.

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write to Nik Popli at nik.popli@time.com.

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