On August 7, the Senate passed the Inflation Reduction Act of 2022. It comes after Senators spent the weekend voting on amendments to the monster 755-page legislation. The bill now heads to the House of Representatives, where it’s expected to pass. Then it lands on President Joe Biden’s desk. A statement from President Biden indicates that he intends on signing it, and that could happen later this week.
[Author’s Note: You can read the full legislation linked here or in mentions of the Act.]
As Electrek reports, the bill–a scaled down version of the Build Back Better Act with a new name–authorizes $369 billion in spending on fighting climate change, down from $550 billion. That $369 billion breaks down, in part, like this (from Electrek):
There are also credits for home upgrades like rooftop solar, battery packs, heat pumps, induction stoves, and more. But I have a feeling that you’re here because you’re interested in one of the other big parts of the bill: The EV tax credit.
The short version is that if the bill gets signed into law the $7,500 EV tax credit would be extended an entire decade. Used electric cars priced $25,000 or less would also be eligible for an EV tax credit of up to $4,000. However, there are a lot of caveats and changes. Here’s how we got here in the first place.
Currently, the U.S. Department of Energy states:
This is how buying an EV or plug-in hybrid has been for a while. But it’s not really as simple as the government’s blurb makes it out to be.
Currently, if you buy an electric car, you still have to pay full price. Come tax time, you can claim a tax credit of up to $7,500. “Up to” is the term to pay attention to, there. The amount depends on two main factors: how much tax money you owe and the size of the battery in the vehicle.
Say that you buy a Nissan Leaf.
It’s a vehicle that’s currently eligible for the full $7,500. However, let’s say that you owe Uncle Sam only $1,000 at tax time. Well, under how the credit is currently structured, your credit is just $1,000. The credit isn’t refundable, so you won’t be getting $6,500 in the bank. And it can’t be applied to next year’s taxes.
One of the biggest EV credit changes proposed in the Inflation Reduction Act is that credits are applied at the point of sale. That means that you don’t have to pay full price then wait until tax time to get some or all of the credit. Instead, the credit is applied at the point of sale, which means that you pay a lower upfront price.
Another big change is the removal of the manufacturer production cap. Currently, the full credits can be applied to only 200,000 cars per manufacturer. That’s a cap that GM, Tesla, and Toyota have exceeded, with other manufacturers also on their way. After the cap is hit, the credits to customers are then reduced by 50 percent every six months until they’re phased out. The Department of Energy notes that GM’s EVs haven’t been eligible for the tax credit for over two years.
With the Inflation Reduction Act, the cap is lifted, allowing full credits for eligible vehicles from popular automakers.
There is a catch to that, and it’s that vehicles now have caps on their MSRP. That’s up to $55,000 for cars and up to $80,000 for SUVs and trucks, Above t hose, and there’s no credit. There are additional requirements that eligible vehicles must be built in North America. And as CNBC notes, how an EV’s battery is made will also impact if it’s eligible for a credit:
Based on these new rules, manufacturers with currently phased-out credits may now get the full up-to $7,500 credit. That means that, depending on how those batteries are made, you could get up to $7,500 on the hood for a Chevrolet Bolt or a Tesla Model 3. However, vehicles like a Tesla Model S, Model X, and higher trims of the Model 3 will be ineligible because of their MSRP.
Right now, it is not clear if any U.S. battery plant can meet the law’s requirements.
And because of the requirement that eligible vehicles have to be built in North America, a large number of vehicles that were eligible before will not be eligible in the future. Those vehicles would include the Toyota Prius Prime, Hyundai Ioniq 5, BMW i4, Subaru Crosstrek Hybrid, Volvo S90 Recharge, and many more.
A Reddit user has compiled a list of what this would look like, and a bunch of vehicles may be losing tax credits. And the list isn’t accounting for how the batteries are made in otherwise eligible vehicles.
The requirements do not stop there. In addition to the vehicle MSRP caps there is also an income cap. That cap is $150,000 for a Single-filing taxpayer and $300,000 for those filing jointly. For used vehicles, the cap is $75,000 and $150,000, respectively.
If signed into law, most provisions go into effect on January 1, 2023. However, one important provision — the location of a vehicle’s assembly — goes into effect after signing. That means if you want to take advantage of current tax credits on a vehicle built outside of North America, you’ll want to get a purchase agreement as soon as possible.
Being able to take advantage of the tax credit right away is a huge win. Now, EVs can be more affordable for more buyers.
For example, with the Bolt now having a starting price of $26,595, this means that you may be able to score one for under $20,000. Another win is allowing popular brands to take advantage of credits. However, a surprising number of other vehicles will no longer be eligible for tax credits. Some of those vehicles aren’t even luxury vehicles. Still, this seems to be a win overall, but we’ll have to wait a little longer for further details on how this will unravel.
Also, they’ve already banned new ICE cars effective ca 2035, automakers either have to have an all electric range in 12-13 years, or just go out of business and liquidate their assets, its a mandate, that’s how mandates work, not really sure why any more incentives are even needed, its going to happen because its already required to happen. You’ll either buy an electric car or no car in the very near future, yeah, I get it, people want it to happen RTFM instead of over the next decade, but, given product development cycles, that’s a very short and reasonable timeline, just wait it out.
After several decades having the US government promote Chinese manufacturing it’s an interesting change.
The Chevy Bolt could be the Beetle of the EV chapter but the damn recall made it worse and its scheduled to go out of production somewhere after 2024, they may keep it longer now with the new tax credits to take advantage of new customers under GM umbrella
https://arstechnica.com/cars/2022/08/its-possible-no-electric-vehicles-will-qualify-for-the-new-tax-credit/
Battery plants are coming, but they aren’t ready, yet.
Pretty sure China can be replaced for US vehicles…
The CBO estimates this would actually reduce the deficit. Seems that it has built in revenue streams to offset its cost, so it can’t really be called spending your way out of inflation.
Leaving aside that the whole deficit debate is mostly stupid. Since the government isn’t growing old and retiring the only thing that matters is the trajectory of the cost of servicing debts relative to the size of the economy.
Also, during the Clinton administration, the government did fully eliminate the deficit for several years: https://raw.githubusercontent.com/wes-brooks/random/main/img/deficit.png
Seems the CBO did say it would result in a net decrease of the deficit, which is what I said. What the CBO DOESN’T generally do is determine the effects on inflation. I included the link the the CRFB earlier to show an outside analysis of the CBO’s estimates, and they are the ones who say it is likely to reduce inflationary pressures.
But sorry that I give the thorough analysis more weight than an online comment, I guess?
Of course, we’ll see what happens in practice!
“Oh, only our smaller battery pack qualifies as US made enough? Gee, sorry about you owing the government thousands of dollars, but how about a free tire rotation to atone for the oversight?”
The “binding contract” (I have a non-refundable deposit, but is that a binding contract?) and “at such time, and in such form and manner, as the Secretary of the Treasury, or the Secretary’s delegate, may prescribe” make the ability to get the old credit on previously ordered vehicles a little sketchy, too. It seems like it would have been a lot easier for the IRS and buyers to just know the sale had to take place before some specific date to count.
What we did: Make it impossible to qualify for tax refunds for these vehicles What we did: Make it more expensive for manufacturers to build these vehicles What we did: Make the process so hard to understand that middle class buyers won’t even consider an EV. What we did: Take EVs that currently qualify for tax credits off the list.
Zero goals achieved. In fact, they made it WORSE. Yet they celebrate like they accomplished something.
This is why our lawmakers suck and all need to be replaced.
By using non Chinese components we don’t support dictatorships, we increase the likelihood of union jobs, and make a better, bigger middle class that can buy these things. I don’t know if you’ve been paying attention, but labor costs haven’t been the problem. Companies have been raising prices for no real reason, NOT raising labor costs much, if at all, AND turning int RECORD BREAKING profits. Quite a nice scam!
I personally want to make sure that EV production is happening here given current global politics.
Lastly, I’m sorry, but, um, if US tax dollars (or the non collection of them) is going to be involved, then YES IT SHOULD BE FOR AMERICAN CARS/AMERICAN COMPONMENTS. Manufacturers can build a factory here like they do in most cases anyway.
MOST GOALS ACHIEVED!
The statement that companies have been raising prices for no real reason has no basis in reality. The law of supply and demand is absolute in the marketplace. When a car has a waiting list because the manufacturer can’t deliver it due to parts availability problems, prices will be high.
Insisting that EV batteries be made in the USA when the capability of manufacturing those batteries in the USA doesn’t exist is not going to drive down prices. The idea that the government can wave it’s hand and make prices go down is absurd.
(2) If the car wasn’t assembled in North America, is a signed build order plus an order deposit (placed before the bill is signed into law) sufficient to get the old tax credit?
2. Yep, a lot of people seem to be in the same boat. Lots of conflicting opinions on the internet…
I mean this will probably slow my adoption of an EV. I was planning to get a PHEV with the $7500 rebate. If there was more vehicle supply out there, I might grab one now, but they also aren’t cheap so I don’t just want whatever 2 vehicles are on the lot.
Without the credit, the numbers need to work on their own, which becomes a tougher value proposition. I’m not buying a full EV for one car until charging is wider spread and reliable. We go out into the middle of nowhere quite a bit, and charging isn’t viable there and don’t expect it to be any time soon.
I’m mostly OK with the protectionist requirements in the tax credit. Automakers will adjust. The US wants to be a big player in battery manufacturing, and this will probably be the kick in the ass the industry needs to make that happen. It’ll be weird for a few years, but it’ll sort itself out. I’d rather have my batteries made here than in most of the places they’re made now, because at least here we kinda-sorta have worker and environmental protections that should mitigate how exploitative and rapacious battery manufacturing is. Also, there are so many jobs and so much money to be made in batteries in the near future that if America wants to maintain its position in the global power structure—which is a given within the US government—we need to get in on this. We can’t let it be like what happened with solar panel manufacturing.
What I’m not cool with is the price cap for trucks and SUVs being $80,000, whereas for cars it’s $55,000. Do we really need to tilt the playing field even more in favor of larger, more dangerous, less efficient, more resource-intensive vehicles? (Not to mention ones that are less fun to drive, but that’s beside the point.) What exactly is the motivation there? What were the writers of the bill trying to achieve? Because I only see negative consequences from that little wrinkle.
I’d also love to have seen the full credit applied to used vehicles. I mean, why the hell not? They seem to want middle-class folks to be the beneficiaries of this credit (hence the income cap) but they’re not going to give those same people as much of a break on used cars? Buying used is better for the environment as well, since you’re not requiring someone to build a whole car just for you. Heck, we should be encouraging people to buy used. This does the opposite.
Still, it’s a good bill overall that’s going to help usher in a lot of positive changes. It’s also great for me and my industry, of course. If you work in any kind of clean-energy field you have to be cheering this on.
But, also, nitpicking on things like that is also how it becomes to the point where nothing gets done…
I’m in the same boat, in that the ETA for delivery is Jan ’23 even though the “binding contract” has been signed long ago. Recall that the intent of the credit is to encourage “greenness” (or used to be, before Manchin tweaked it), and it would suck to miss out just because there is a delay in transit, or the dealer’s point-of-sale is out of service and you can’t complete the transaction before the arbitrary date of 12/31/22.
