In a big win for Democrats, Senate approval of the Inflation Reduction 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 automotive industry a large part of the legislation is the extension of the $7,500 federal tax credit for EVs (electric vehicles), which will remove the limit for automakers to qualify for the credit, which is currently at 200,000 vehicles. This means that Tesla and GM, which were phased out, will be eligible again.
While that sounds good news for automakers, several requirements have now been put in place leading automakers to claim that 70% of EVs and PHEVs (plug-in hybrid EV) are ineligible for the credit.
“There are currently 72 EV models for sale in the United States, including batteryplug-in hybrid and fuel cell electric vehicles, says John Bozzella, 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:
Final assembly must take place in North America.
MSRP should be less than $55,000 for cars and less than $80,000 for trucks and SUVs.
The procurement of battery material must be from the US or its free trade partners to be phased in. Batteries should have 40% content from those providers by 2024 and 100% by 2029. At the moment, China dominates in EV batteries, with 76% of the market.
The final component of battery procurement, which will become available in less than two years, means that no EVs qualify for the credit, Bozzella says. Note that these are only requirements on the car manufacturer’s side; the bill adds income requirements on consumers, leaving many high-earning Americans and joint filers ineligible for the tax breaks.
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, and because the Mach-E is assembled in Mexico, it would in fact qualify for the tax credit.
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 best-selling car entries, the Chevrolet Bolt EV and Bolt EUV, sold 6,945 units in the quarter. With a starting price of $25,600, the Bolt is the cheapest all-electric vehicle on the market, and with final assembly taking place at GM’s Orion plant in Michigan, the Bolt is eligible for the federal tax credit.
Audi E-Tron, Lucid Air, Polestar 2, Porsche Taycan
Note that several popular, various sought-after models currently eligible for the federal tax credit will fail if the law is signed – models such as the Audi E-Tron (country of assembly), Lucid Air (price), Polestar 2 sedan ( country of installation) and Porsche Taycan (price & country of installation).
All is not lost for manufacturers, however, as the incentives may no longer be as important.
“By the time automakers can make the law fully available, the market will be ready to accept electric vehicles and the incentives will no longer be needed,” said Sam Fiorani, vice president of Global Vehicle Forecasting at AutoForecast Solutions in a statement. 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.”