Industry group says most EVs no longer qualify for federal tax credits

Electric vehicle buyers hoping to get a government tax credit after President Joe Biden signs the Inflation Reduction Act may find fewer eligible vehicles.

The Clean Vehicle Credit, part of the Inflation Reduction Act passed by Congress last week, had a provision that added a credit of up to $4,000 for used EVs. The new law also lifts the current sales cap of 200,000 EVs, meaning vehicles from Tesla, General Motors and Toyota will once again be eligible for a federal tax credit.

The law also tightens restrictions on which vehicles qualify for the credit. To receive the tax credit, vehicles must be manufactured in North America and made with batteries that have critical components purchased or supplied in North America by the country’s free trade agreement partners. The new law also means that high-income buyers and more expensive EVs are not eligible for the credit.

Of the more than 70 EVs currently on the market, an insider says one possibilitythat no EVs will qualify for a tax credit in the short term.

“When the Inflation Reduction Act is passed and signed by the president, those rules will change and become much more restrictive,” said John Bozzella, president and CEO of Alliance for Automotive Innovation. “And that’s because the purpose of the credit has changed. It’s now focused on reducing our dependence on China for raw materials and battery components.”

But as EV and battery production moves to the US, many more vehicles will qualify for the federal tax credit. Bozzella estimates there will be as many as 120 EVs on the market in five or seven years that could qualify for the new credit.

“It won’t happen overnight, despite the fact that companies are now investing billions of dollars developing those supply chains,” Bozzella said. “So what you’ll see is a reduction in the number of vehicles that qualify, and over time we expect more vehicles to qualify in the future.”

The changes have confused industry experts, manufacturers and consumers.

“Consumer Reports did a study and we found that half of car buyers are more likely to buy an EV if there’s a tax credit that lowers the price, so those tax credits are clearly important to buyers,” said Keith Barry, an autowriter at consumer reports. “And if people can’t quite figure out which car qualifies, I imagine sales will stagnate in the near term.”

Manufacturers, dealers and others in the auto industry are waiting to see what effect the bill will have on EVs.

“We’ll have to wait and see,” Barry said. “Different manufacturers say different things about which cars are eligible during these transition periods. And unfortunately there is no one-size-fits-all answer here until the regulations are fully written and the dust settles.”