The Inflation Reduction Act tax credit for electric vehicles, explained – The Verge | Vette Leader

Are you looking for a new electric car? Big! EVs are fast becoming the most desirable new vehicle. They’re fun to drive and clearly better for the environment than any gas powered bat blacking out your driveway.

But buying a new electric vehicle is difficult – expensive! limited supplies! waiting lists?? — and sadly, Congress and President Joe Biden only rushed in to make it even harder. On Tuesday, Biden signed the Comprehensive Inflation Reduction Act of 2022, the nation’s most significant climate law ever enacted. One of the key parts of the bill is new tax credits for electric vehicles.

Sounds great right? think again The tax credits are actually a confusing morass of eligibility requirements and procurement regulations that can ultimately limit what people buy. There are income caps, sticker price requirements, battery and supply chain limits, various stages where the old credits still work but new requirements apply…. woof. Do they want people to buy electric vehicles or not?

Luckily you have a friend with you The edge This is here to help you deal with all of these questions. Let’s dive in, shall we?

What is the Inflation Reduction Act EV tax credit?

Simply put, the Inflation Reduction Act includes a $7,500 point-of-sale tax credit for new EVs and $4,000 for used EVs. The new tax credits replace the old incentive scheme, which only included $7,500 for new electric vehicles.

Which car companies are eligible for the EV tax credit?

After President Biden signs the law into law, some new rules that you need to know first go into effect immediately. Most of the new rules don’t come into effect until December 31, 2022 and will remain in effect until 2032, but let’s talk about what you need to know now.

Starting today, electric vehicles in North America must be assembled to qualify for the $7,500 tax credit. I know what you’re thinking: how the hell am I supposed to know which vehicle is made where? Fortunately, the Biden administration already has a list of 20 EVs that qualify for deployment.

Oh great, that looks useful. But I don’t see many of the popular EVs I wanted to buy, like the Hyundai Ioniq 5 and the Kia EV6.

I have bad news, buddy. Those EVs you just mentioned are made in South Korea and are no longer eligible for tax credits.

What about the BMW i4? Or Toyota bZ4X?

Germany and Japan and

Damned. Okay, I guess I’ll get a Tesla. What does “Manufacturer’s Sales Cap Reached” mean?

That means those companies — Tesla, General Motors, and Toyota (there are just three right now) — have already sold over 200,000 electric vehicles, resulting in an expiration of the $7,500 tax credit under the previous rules. These three companies are no longer eligible for the current tax credits.

Photo by Andrew J. Hawkins / The Verge

But I thought the new tax rules were already in place.

Not yet! We are in a strange borderline phase where some of the new rules are in place but most will not come into effect until the new year. I told you, this is getting confusing!

What happens to the cap?

As of January 1st, the cap of 200,000 vehicles will be gone. phew That means Tesla, GM and Toyota are once again eligible for the tax credit.

What is the best EV you can buy right now?

Honestly, good luck finding something now. The demand for electric vehicles is very high and inventories are extremely low. Waiting lists are long and dealerships are marking new electric vehicles like there’s no tomorrow. It’s a perfect storm for not getting what you want.

But if you can afford it, opt for one of the premium or luxury electric vehicles like Lucid or Rivian. Both companies are trying to get customers to sign “written binding contracts” to secure the current EV tax credit before the new rules complicate things. After the new year there will be a number of other requirements as to who can claim the loan and which cars are eligible.

What are these “written contracts” all about?

For example, the Inflation Reduction Act contains a “transitional rule” under which any customer with a “binding written contract to purchase” a new electric vehicle before the law comes into force can claim the old tax credit, even if the vehicle has already been delivered after the bill was passed.

Before these changes were announced, customers interested in purchasing an electric vehicle could put down some money—usually a few hundred dollars—for a refundable electric vehicle deposit. But reservations aren’t specifically covered under the bill’s language, so automakers are encouraging customers to sign binding contracts to improve their chances of qualifying for the tax credit.

What are the income requirements for the EV tax credit? Should I buy now or wait?

If you are rich, now is the time to buy. There are currently no income requirements to apply for the loan. However, beginning January 1, credits will be capped at an income level of $150,000 for a single taxpayer and $300,000 for joint taxpayers.

There will also be limits on which electric vehicles will qualify for the credit based on the manufacturer’s suggested retail price or MSRP: $55,000 for new vehicles and $80,000 for pickups, SUVs and vans. However, keep in mind that various options and high-tech features cost extra money, and the final price counts for credit.

But at the moment and until the end of the year these price caps do not apply.

What if I don’t have that much money?

Then I’d recommend waiting until January 2023, when much cheaper EVs like the Chevy Bolt EUV and Tesla Model 3 will be newly available for credit. (Remember the cap is lifted.)

Photo by Vjeran Pavic / The Verge

That actually doesn’t seem that confusing.

Okay, now’s a good time to talk about the other key provision in the climate bill that’s giving automakers a headache. Under the new rules, electric vehicles with battery components sourced from “concerning foreign companies” such as China, which produces the vast majority of battery parts and minerals, will no longer be eligible for the tax credit if put into service after December 31 , 2023. If the battery only contains minerals from these countries, it will no longer be eligible as of 12/31/2024.

What are the battery requirements in the new EV tax credits?

The law requires batteries to source at least 40 percent of their materials from North America or a U.S. trading partner by 2024 to be eligible for the tax break. By 2029, battery components would have to be 100 percent made in North America. (Curiously, this restriction doesn’t apply to used cars.)

What vehicles are eligible under these new minerals and mining regulations? We – and I can’t stress this enough – don’t know.

Sounds bad.

At least according to the Alliance for Automotive Innovation, which represents all major car companies.

According to the Alliance, there are currently 72 EV models available in the US, including battery, plug-in hybrid and fuel cell electric vehicles. Of those models, 70 percent (or about 50 models) will not qualify for the tax credit if the law is passed. And by 2029, when the additional procurement requirements go into effect, none would qualify for full recognition.

I thought this bill should encourage more people to buy electric vehicles. I don’t feel very encouraged.

It still might! Experts concede that these new rules are likely to slow EV sales in the short term, but once the auto industry brings its battery manufacturing and supply chain to North America — which it is doing now, albeit slowly — then the real benefits of this new tax credit will become real to be felt.

For example, think of the cap of 200,000 vehicles. Ford was expected to hit that limit any day now, prompting the exit. In fact, it was expected that most automakers would hit the cap sooner or later. But as of January 1, the cap is gone, and many more EVs that were previously ineligible for the credit will now qualify again.

Automakers and state regulators are still working out the details. There is some hope that automakers may seek exemptions from the requirements because of the precedent that allowed many manufacturers to circumvent Buy America rules enacted as part of last year’s bipartisan infrastructure law.

However, some automakers are taking steps to bring these mining operations to the United States. GM, for example, recently struck a deal to source lithium, a key ingredient in electric vehicle batteries, from geothermal deposits in California’s Salton Sea Geothermal Field.

That leaves many questions about the other key ingredients like nickel, cobalt and magnesium — minerals that are expected to become scarce once the clean energy economy begins to take off.

That’s honestly above my pay grade. Maybe I’ll sit it out for now.

You and me both, buddy.

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