How the best-selling electric vehicles will be affected by new tax relief

How the best-selling electric vehicles will be affected by new tax relief

In a big win for Democrats, Senate approval of the Inflation Adjustment Act brings the bill to the House, where the bill is expected to pass. If all goes according to plan, the legislation could be in a few weeks for President Biden to log in.

For the auto industry, much of the legislation is extending the $7,500 federal tax credit for EVs (electric vehicles), extending the limit for automakers to qualify for the credit — which currently stands at 200,000 vehicles. will be removed.

While that sounds good news to the automakers, several requirements have now been put in place leading the automakers to claim that 70% of EVs and PHEVs (plug-in hybrid EV) are ineligible for the credit.

“There are currently 72 EV models available for purchase in the United States, including battery, plug-in hybrid and fuel cell electric vehicles,” said John Bozella, CEO of the Automotive Innovation Alliance, a trade group that counts General Motors, Toyota and Ford as members, in a statement. “Seventy percent of those EVs would immediately become ineligible if the bill were approved, and none would qualify for the full credit when additional purchasing requirements go into effect. Zero.”

Here are the main requirements that will change and make EV tax credits more restrictive:

  • Country of final assembly must be USA

  • MSRP must be below $55,000 for cars and below $80,000 for trucks and SUVs

  • Procurement of battery material must come from US or free trade partners, with a phasing-in from 2024

The final leg of battery sourcing, coming in less than two years, means no EVs are eligible for the credit, Bozella says. Note that these are only requirements on the car manufacturer’s side; the bill adds income requirements to consumers, making many high-earning Americans and joint filers ineligible for the tax breaks.

The Automotive Alliance for Innovation lists all zero-emission EVs and PHEVs for sale in America hereby with a map and list from EV and battery manufacturers in America.

Along with that information and quarterly sales reports, Yahoo Finance has verified how the following cars, the top 5 selling EVs and PHEVs in America, will fare under the new rules.

Tesla Model 3 and Model Y

Both U.S.-made Model 3 sedans and Model Y SUVs, America’s top-selling EVs, would qualify for the tax credit after the passage, boosting the brand as Tesla is currently being taken out of the tax credit. (Note: Tesla does not split sales between Model 3 and Model Y, but registration information is used as a proxy.)

However, only the lowest trim Model 3 rear-wheel drive qualifies (MSRP $46,990). Concerning the Model Yboth versions are eligible (Long Range – $65,990; Performance – $69,990) assuming the government classifies the Model Y as an SUV.

Ford Mustang Mach E

Second in sales last quarter for EVs and PHEVs was the Ford Mustang Mach E, with 10,941 units sold. With a starting MSRP of $43,895, the base Mach-E could qualify as a car or SUV, but the Mach-E is assembled in Mexico so it doesn’t qualify for the tax credit. This is a significant disadvantage for Ford, as its current tax credit undoubtedly outpaced its sales relative to its closest competitor, the Tesla Model Y.

Jeep Wrangler 4xE

The first plug-in hybrid on the list, the Wrangler 4xE, sold 10,861 units in the quarter. Most likely categorized as an SUV, and with a starting MSRP of $54,595, it would qualify for the tax break because the Wrangler is made at Jeep’s Toledo, Ohio plant.

Hyundai IONIQ 5 and Kia EV6

The first non-US brand on the list, the all-electric Hyundai IONIQ 5which sold 7,448 units in the second quarter, and its sister brand Kia’s EV6 EV sold 7,287 cars. Although the Korean automaker builds cars in the US at a plant in Alabama, the IONIQ 5 and Kia EV 6 are built in South Korea, so they are not eligible for the tax credit. This is a blow to Hyundai, as the IONIQ 5 and EV6 have been lauded by reviewers and start at a very competitive $39,950 and $33,900 respectively, although the relatively cheap MSRPs could still be both viable options for many Americans, despite the loss of the credit.

Chevrolet Bolt EV and EUV

GM’s only entry on the list, the Chevrolet Bolt EV and Bolt EUV, sold 6,945 units in the quarter. With a starting price of $25,600, it’s the cheapest all-electric vehicle on the market, and with final assembly taking place at GM’s Orion plant in Michigan, the Bolt continues to qualify for the federal tax credit.

Audi e-tron, Lucid, Polestart P2

Note that popular, sought-after models such as the Audi e-tron (Assembly Country), Lucid Air (Price), Polestar P2 (Assembly Country), and Porsche Taycan (Price & Assembly Country) currently qualify for federal tax credit, will not if the bill is signed into law.

All is not lost for manufacturers, however, as the incentives may no longer be as important.

“By the time vehicle manufacturers can fully recognize the law, the market will be ready to accept electric vehicles and the incentives will no longer be necessary,” Sam Fiorani, Vice President of Global Vehicle Forecasting at AutoForecast Solutions, said in a statement to Yahoo. Finance. “With or without the incentives, the price for the buyer will not change significantly. Such incentives drive up the price and provide additional profit for the manufacturer.”

Pras Subramanian is a reporter for Yahoo Finance. You can follow him on Twitter and further Instagram.

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