Inflation-reducing legislation designed to accelerate the transition to electric vehicles among other climate goals actually makes buying an electric car much more complicated.
In August, the law removed a full $7,500 tax credit for electric and plug-in hybrid vehicles assembled outside of North America. It may become difficult to purchase a car for
The Treasury Department this week further tightened those rules, requiring that a certain percentage of vehicle battery components and minerals be sourced from the United States or its trading allies. This number increases over time.
There are just 11 electric cars on the market from four automakers: Tesla, General Motors, Ford Motor, and Volkswagen. be eligible for a full tax exemptionsome others may qualify for a partial $3,750 credit. The list is expected to grow as more automakers reconfigure their supply chains.
The regulation is already making big changes to the buying and selling of electric vehicles. Some automakers whose models have been ineligible are now pushing ahead with leasing electric vehicles. This is because the law recognizes leased vehicles as commercial vehicles, and the Inflation Control Act exempts the restrictions that apply to cars purchased by individuals.
For many car buyers, the availability of tax credits is important. According to the Kelley Blue Book, electric car prices have fallen in recent months, but he still averaged $58,940 in March, nearly $11,000 more than a typical new car. I’m here.
Ethan Darner of Portland, Oregon, and his fiancé Lorien Sekora share two electric Kia cars. Darner considered upgrading to a newer model that could go farther on a charge, but decided against it when he realized the car he wanted was too expensive or less practical than his current car. He’s extended the lease on his Kia Soul and is waiting for a more affordable model that’s tax-deductible.
“The only other model I’m considering right now is the Rivian, but it’s out of my price range,” Darner said. His Rivian electric luxury models, such as his R1T pickup truck and his R1S SUV, were ineligible for the tax credit because of battery procurement requirements, even though they are manufactured in Illinois.
“Until you can drive to and from Seattle without fear,” Darner added. “I’m not going to buy a new EV anytime soon.”
His experience is common. According to a recent survey conducted by Cars.com, nearly 80% of prospective electric vehicle buyers said tax credits played a major role in their decision to buy an electric vehicle and the vehicle they plan to purchase. increase.
Many industry experts and consumers applaud the law’s multifaceted mission to curb greenhouse gas emissions, create jobs in the United States, and weaken China’s dominance in battery and mineral processing. increase. Since President Biden took office, automakers, batteries and other companies have announced plans to spend more than his $100 billion to electrify the US auto industry.
But the rule could hamper the goal of getting more people to buy electric cars, at least for the next few years.
Chris Harto, Senior Policy Analyst at Consumer Reports, said: “There is no doubt that in the short term it hurts unqualified businesses and helps qualified ones.”
The reorganized credits appear to be giving Hyundai Motor a particularly tough hand, which also owns the Kia and Genesis brands.
Models such as the Hyundai Ioniq 5 and Kia EV6 have earned industry accolades and impressed buyers with their attractive designs and the fastest charging times of any electric vehicle. However, they are not eligible for federal tax breaks because they are manufactured in South Korea.
Sales of the brand’s electric vehicles fell by more than 25%, according to the Kerry Blue Book, despite sales surges for all Hyundai and Kia in the first three months of the year. Overall, electric car sales hit a new record in the first quarter, and by 2023 he’s on pace to exceed 1 million units, now accounting for his 7.2% of all new cars sold. I’m here.
Credit rules are changing rapidly. Last month, Genesis’ first American-made model, the Electrified GV70 Sport Utility Vehicle, began shipping from Hyundai Line in Alabama after 16 hours of assembly. Genesis executives hoped the model could qualify for the credit, but the car didn’t meet the stricter rules announced by the Biden administration this week.
To make up for the tax cut losses, Hyundai and other automakers are trying to lure buyers through leasing. Under a broad interpretation of the government’s law, leased electric vehicles, even those manufactured abroad, are tax deductible, subject to sourcing requirements for battery components and minerals, household income ceilings, and vehicle price limits. Not subject to government regulations on thresholds.
Car dealers can pass on commercial credit to consumers by lowering the price of cars in leasing deals, which can reduce monthly payments. According to Volvo spokesman Russell Datz, the rule of thumb for auto loans is that if a $7,500 full credit is applied to a lease, the consumer will pay about $225 a month over three years and $125 a month over five years. can save
Based in Gothenburg, Sweden, Volvo sells two electric models in the United States that are built in factories in Belgium and are not eligible for federal tax credits. The automaker plans to begin assembling his new SUV, the EX90, at its plant in South Carolina this year.
Consumers are getting the message to save money. According to Edmunds.com, in September after the law was passed, only 7% of consumers leased electric vehicles. By March, Reese had his 34% share of the electric vehicle market.
Gary Murphy, a retired educator from Castle Rock, Colorado, leased an Ioniq 5 from a dealer in February.
“We had no plans to lease the car,” Murphy said. “But when they confirm that you can get $7,500 on a lease or you can’t buy anything, it’s too great an incentive to pass up.”
He waited months for three different electric models before spotting the Ioniq 5, but they were in short supply. When the cars became available, many dealers asked thousands of dollars more than the manufacturer’s suggested retail price.
“You can get credit, but you can’t get a car,” Murphy said.
Using the credit for leased vehicles has angered some automakers and lawmakers who say it undermines Congress’ intentions. Consumers can lease any electric vehicle for $7,500 in credit. . For example, a couple earning over $300,000 (married tax credit income limit) leases a $148,000 Mercedes-Benz AMG EQS, even though the car is German-made and well above his $55,000 price cap. You can claim a deduction of $7,500. Electric sedans qualify for credit.
Treasury officials say the decision to allow tax credits for leased vehicles is legally justified. The Inflation Control Act exempted commercial vehicles from restrictions and encouraged rental car companies, local governments and other car and truck owners to purchase electric vehicles.
Of course, many consumers prefer to buy and own a car. One reason is to avoid leasing limits on how much you can drive and penalties for excessive wear and tear.
Jose Munoz, chief executive of Hyundai and Genesis Motor North America, says the loss of buyer credit puts his brand at a significant disadvantage in the market. Council president Kevin Riley said models like the Ionic 5 and Ionic 6 remain competitive despite the economic handicap.
The recently launched Ioniq 6 is the longest-range, most energy-efficient mass-market electric vehicle in the United States. It can go up to 361 miles on a full charge, equivalent to 140 miles per gallon, according to the Environmental Protection Agency.
Riley, owner and president of Alexandria Hyundai of Virginia, said:
Riley said leasing has other benefits. Even if you are worried about switching to a battery-powered car, you can try it without worrying about long-term contracts or resale value. And as electric vehicle technology advances and more affordable models hit the market, customers can easily upgrade when their lease ends.
Still, some car buyers say they will only buy tax-deductible electric vehicles to support the aims of the anti-inflation law.
Detroit entrepreneur Jonathan Quarles said he spent more than $150 a week to fill his Ford Expedition to transport his three daughters around town. He’s considering replacing it with an electric Ford Mustang Mach-E, which qualifies for a $3,750 federal tax credit. After decades of watching manufacturing jobs leave the country, he said he has little sympathy for automakers whose cars don’t qualify for credit.
“My view is that the factory should have been built long before the credit,” he said.
