2023 EV tax credits in the US will increase their appeal

Beginning January 1, many Americans will be eligible for a tax credit of up to $7,500 for purchasing an electric vehicle. The loan, which is part of amendments to the Inflation Reduction Act, aims to boost sales of electric vehicles and reduce greenhouse gas emissions.

But a complex web of requirements, including where vehicles and batteries must be manufactured in order to qualify, cast doubt on anyone’s ability to earn the full $7,500 credit next year.

For at least the first two months of 2023, however, a delay in Treasury Department rules for the new benefit will likely make full credit temporarily available to consumers who meet certain income and price limits.

The new law also provides for reduced credit for people who buy a used electric vehicle.

Certain EV brands that were eligible for a separate tax credit that began in 2010 and ends this year may not be eligible for the new credit. For example, several EV models from Kia, Hyundai and Audi are out of the question because they are manufactured outside of North America.

The new tax credit, which runs until 2032, aims to make zero-emission vehicles affordable for more people. Here’s a closer look at it:

WHAT’S NEW FOR 2023?

The loan of up to $7,500 will be offered to individuals purchasing certain new electric vehicles, as well as some plug-in gas-electric hybrids and hydrogen fuel cell vehicles. A $4,000 credit is available for individuals purchasing a used vehicle that runs on battery power.

But the question of which vehicles and buyers qualify for the loans is complicated and will remain uncertain until the Treasury Department issues proposed rules in March.

What is known so far is that new electric vehicles must be manufactured in North America to qualify for the loan. In addition, caps on vehicle prices and buyer income are intended to disqualify wealthier buyers.

From March, complex regulations will also apply to battery components. 40 percent of battery minerals must come from North America or a country with a US free trade agreement, or be recycled in North America. (This threshold will eventually increase to 80%.)

And 50% of battery parts must be manufactured or assembled in North America, which will eventually increase to 100%.

From 2025, battery minerals will no longer be allowed to come from “sources of concern abroad”, mainly China and Russia. Battery parts can no longer be sourced in these countries by 2024 – an annoying obstacle for the auto industry as numerous EV metals and parts are now sourced from China.

There are also battery size requirements.

WHAT VEHICLES ARE ELIGIBLE?

Due to the many remaining uncertainties, this is not entirely clear.

General Motors and Tesla assembled most of the electric vehicles in North America. Everyone also makes batteries in the US. But due to the requirements of where batteries, minerals and parts must be manufactured, it’s likely buyers of these vehicles would initially receive only half the tax credit, $3,750. According to GM, its eligible electric vehicles should qualify for the $3,750 credit by March, with the full credit being available in 2025.

However, until the Treasury Department issues its rules, the requirements for where minerals and parts must be sourced will be waived. This allows eligible buyers to receive the full $7,500 tax incentive for qualifying models in early 2023.

The Department of Energy says 29 EV and plug-in models were manufactured in North America during the 2022 and 2023 model years. They come from Audi, BMW, Chevrolet, Chrysler, Ford, GMC, Jeep, Lincoln, Lucid, Nissan, Rivian, Tesla, Volvo, Cadillac, Mercedes and Volkswagen. However, due to price restrictions or battery size requirements, not all of these vehicle models are eligible for credit.

WHAT ABOUT THE PRICE?

To qualify, new electric sedans must not have a sticker price greater than $55,000. Pickups, SUVs and vans must not cost more than $80,000. This disqualifies two higher-priced Tesla models. Although Tesla’s top sellers, the Model 3 and Y, are eligible, these vehicles with options could break the price cap.

Kelley Blue Book says the average EV is now over $65,000, although cheaper models are coming.

WILL YOU QUALIFY FOR THE CREDITS?

It depends on your income. For new EVs, buyers must not have an adjusted gross income exceeding $150,000 as a single, $300,000 if registered jointly, and $225,000 as a head of household.

For used EV buyers can earn no more than $75,000 as a single, $150,000 if joint filing, and $112,500 as a householder.

HOW WILL THE LOAN BE PAID OUT?

First, it will be applied to your 2023 tax return that you file in 2024. From 2024, consumers will be able to transfer credit to a retailer to reduce the price of the vehicle upon purchase.

WILL CREDITS BOOST EV SALES?

Yes, but it’s probably going to be a few more years, says Mike Fiske, associate director at S&P Global Mobility. The loan could cause sales to slump early next year as the Treasury delayed stricter requirements. But most automakers are now selling all the electric vehicles they build and are unable to produce more due to a shortage of parts, including computer chips.

And automakers may have trouble certifying the sources of battery minerals and parts, a requirement for buyers to receive full credit. Automakers have been scrambling to move more electric vehicle supply chains to the United States

HOW DOES THE USED EV LOAN WORK?

Consumers can receive tax credits of up to $4,000 — or 30% of the vehicle price, whichever is lower — for the purchase of electric vehicles that are at least two years old. But the used EV has to cost less than $25,000 — a tough challenge given the entry-level prices for most EVs on the market. A search on Autotrader.com shows that the Chevy Bolt, Nissan Leaf, and other relatively economical pre-owned 2019 model EVs are listed for $26,000 or more.

On the other hand, used electric vehicles do not have to be manufactured in North America or meet battery sourcing requirements. This means that, for example, a 2022 Kia EV6 that is ineligible for the new car loan because it was made in South Korea can qualify for a used car loan if its price falls below $25,000.

“The real impact where these tax credits are going to have a big impact is going to be in the period from 2026 to 2032 — a few years out — as automakers upgrade and volumes go up,” said Chris Harto, senior policy analyst for Consumer Magazine reports.

WHY IS THE GOVERNMENT OFFERING THE LOANS?

The loans are part of about $370 billion in clean energy spending – America’s largest investment to fight climate change – signed into law by President Joe Biden in August. EVs now account for about 5% of US new car sales; Biden has set a goal of 50% by 2030.

Electric vehicle sales have surged, especially since California and other states moved to phase out gas-powered cars. The rise of lower-cost competitors to Tesla, such as the Chevy Equinox, with an expected base price of around $30,000, is expected to expand the reach of EVs into mid-range homes. S&P Global Mobility expects the share of electric vehicles in car sales to reach 8% next year, 15% by 2025 and 37% by 2030.

COULD THE REQUIREMENTS BE RELEASED TO ALLOW MORE EVS?

That’s not clear yet. Some US allies are angered by North American manufacturing requirements disqualifying EVs made in Europe or South Korea.

The conditions knock Hyundai and Kia out of credit, at least in the short term. They plan to build new EV and battery factories in Georgia, but they won’t open until 2025. European Union countries fear the tax credits could persuade their automakers to move factories to the US

The Treasury Department said it would release information on the “probable direction” of battery procurement and mineral needs by the end of the year. Relaxing rules to address US allies’ concerns would make more electric vehicles eligible. But there is also a risk that that U.S. dependence on foreign companies will expand in supply chains.

ARE THERE LOANS FOR CHARGING STATIONS?

Credits may be available if you install an electric vehicle charger at home. The new law revives a federal tax credit that expired in 2021; It covers 30% of the hardware and installation costs, up to $1,000. It adds a requirement that the charger must be in a low-income or non-urban area. Businesses that install new electric vehicle chargers in these areas can get tax credits of up to 30% — up to $100,000 per charger.

Home chargers can range from $200 to $1,000; Installation can add several hundred dollars.

SO SHOULD YOU BUY NOW OR WAIT?

That’s a very personal decision.

If you’re fed up with volatile gas prices and are considering an electric vehicle, you might want to move on. Purchasing a qualifying EV in January or February could net you the full $7,500 tax break before stricter requirements take effect in March. Additional government loans may also be available.

But if you’re still on the fence, there’s no urgency. Consumers who rush to buy now, when relatively few qualifying EVs are available, can expect dealer markups. Within a few years, technology will improve and more electric vehicles will qualify for full credits.

Associated Press writer Fatima Hussein contributed to this report.

© Copyright 2022 The Associated Press. All rights reserved. This material may not be published, broadcast, transcribed or redistributed without permission.

Leave a Reply

Your email address will not be published. Required fields are marked *