You can get a $7,500 tax credit to buy an electric car, but it’s really complicated
The big climate and health care bill signed into law by President Biden has what at first glance looks like a big incentive for car buyers: a revamped $7,500 tax credit if you buy a car. new electric vehicle, or $4,000 if you get a used vehicle. a.
Although tax credits for electric cars have been offered before, the new bill revamps those incentives. But there are so many caveats — on everything from buyers’ income level to eligible models — that many electric cars may in fact not be eligible for the tax credit.
Still, the caveats are there for two main reasons: to make electric cars more affordable for more Americans and to bring more production through the supply chain to the United States.
If the bill succeeds in achieving both of these goals, experts believe the law could catapult the electric vehicle market into the mainstream in a way the country has never seen before.
Here’s what you need to know about tax credits.
So, who is entitled to the redesigned tax credits?
Only single people with incomes of up to $150,000 per year and couples who file taxes jointly and earn up to $300,000 will be eligible.
This income cap requirement is intended to help less well-off people afford electric cars and to incentivize automakers to expand their customer base.
The high cost of electric cars has long been seen as a major barrier to the adoption of these vehicles. Currently, the average price of an electric vehicle is $66,000.
What about the requirements for electric vehicles?
There are major requirements, both on how the car – and its battery – is produced and on the overall price of the vehicle.
For starters, to get the full tax credit, the car must be assembled in North America. This provision of the law went into effect when President Biden signed the law last week. There are more than two dozen vehicles that meet this requirement, according to the US Department of Energy, but dozens more have already been disqualified from the tax credit with this requirement alone.
As of January 1, 2023, further warnings come into effect.
Sedans must be under $55,000 to qualify, and the cost of trucks, vans and sport utility vehicles cannot exceed $80,000.
The price cap for used electric vehicles is $25,000, but cars won’t have to meet Made-in-America requirements.
Are there also requirements for the batteries?
Yes, and this is important because the batteries are the most important part of any electric car
A certain percentage of minerals in the EV battery must come from North America or a country that has a free trade agreement with the United States
Much of the battery components must also be manufactured or assembled in North America.
This should complicate things for automakers.
“It’s going to be a huge burden and hurdle to overcome,” says Carla Bailo, CEO of the Center for Automotive Research. “We don’t have the mining, we don’t have the critical minerals that North America or our free trade partners need, and almost 90% of the refining is done in China.”
Currently, no electric vehicle on the market will qualify for the full tax credit when the battery requirements come into force in 2023, according to the Alliance for Automotive Innovation.
Is it possible to benefit from a partial tax credit?
A buyer could get a partial credit of $3,750 if 40% of the critical minerals in electric vehicle batteries come from countries with which the United States has a free trade agreement.
The other $3,750 is related to battery components. From 2023, 50% of components must be manufactured or assembled in North America.
Over time, the required amount of minerals in EV batteries from the United States or trading partners will increase. The same will apply to the required quantity of components manufactured or assembled in North America.
Which automakers win and lose under this law?
Based on what is currently available in the market, premium electric car companies like Rivian stand to lose customers who qualify for the tax credit based on the cost of their vehicles.
Companies like Tesla or General Motors that produce cars in the United States and have already changed their supply chains are better placed to meet the many demands.
“They’re probably at the forefront of this technology right now with some vehicles on the market and many more on the way,” says Jessica Caldwell, executive knowledge manager at Edmunds.
Meanwhile, international automakers, like Toyota and Hyundai, face big decisions.
“For Asian and European automakers who have limited production in North America, that’s where we might see a bit more weighing on the scales in terms of, ‘Is it worth it for us to shift vehicle production or material sourcing to qualify for this , or are we just moving on?” said Michael Fiske, associate director of powertrain and compliance for S&P Global Mobility.
Don’t these warnings make it difficult to obtain the tax credit?
It will be difficult, if not impossible, for buyers to qualify for the full $7,500 tax credit as automakers redesign their operations to meet varying requirements.
But that’s a long-term game of the Biden administration. By urging automakers to meet the needs of a less affluent crowd and pushing automakers to bring their supply chains to the United States, the administration believes it can make electric vehicles more mainstream and accelerate toward an ambitious goal: to ensure that half of all new car sales are electric. models by 2030, compared to only 3% today.
Another motivating factor is China.
China controls about three-quarters of the market for battery-critical minerals, and the Biden administration is concerned about continued access to these minerals. By strengthening domestic supply chains, the administration intends to reduce China’s ability to disrupt the electric vehicle market.
“This is about protecting American national security,” Fiske says. “We have seen a lot of challenges with the Middle East’s dependence on oil over the last half century or more. Now I think there are valid concerns about becoming too dependent on Asian countries. for the processing and manufacturing of batteries and battery-related materials for the next decade or 50 years.”
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