Grab your calculators and pencils, and bring a big eraser, please. This week federal officials released a preliminary list of electric vehicles that could qualify for the upcoming, revised $7,500 EV tax credit passed last year and signed into law. Instead of capping manufacturers on the number of electric cars they make, the new EV tax credits exclude vehicles based on where they’re assembled, the buyer’s income, and how much they cost.
The guidance issued by the Treasury Department before the new year doesn’t include cars from several manufacturers who’ve signaled their intent to comply with the new credits—such as General Motors, some that have, and the rules will change again in March. In short, what qualifies now and for how much may not be the same in March.
That’s when automakers expect to receive updated guidance on battery sourcing requirements that, up until March, are clear as mud. Guidance issued this week included sourcing components from outside North America—if the U.S. maintains a free-trade agreement with the country—but only for cars sold retail to individual buyers. Electric vehicles bought for commercial purposes or leasing companies, for now, don’t have to comply with the assembly and sourcing requirements, which was a surprise to many.
Until now, most parts of the credit were straightforward: EVs with a purchase price of $55,000 or less for cars, $80,000 or less for trucks and SUVs qualified. Some models, such as the Tesla Model Y, won't initially qualify for the credit because the $68,990 price is too high. Add a tiny third row? Now the Model Y counts for a $7,500 tax break. Buyers with a yearly household income of $300,000 or less if married ($150,000 or less if single) qualified for the credit. Used cars could receive a one-time credit of up $4,000 if the car is two years old or older and the purchase price is less than $25,000 (with an annual income of $150,000 if married or $75,000 if single). The cars would need to be assembled in North America to claim the full credit until March.
That’s because in March, the Treasury Department will identify battery sourcing requirements that will apply to retail buyers and it’s possible that no new cars will initially qualify for the full credit, only up to half of the full amount. For instance, the Tesla Model 3, which will qualify next month for the full $7,500 credit, may not fetch the same amount after March due to its battery material. The same goes for the Ford Escape Plug-In Hybrid and more. Half of the available EV credit will be contingent on the battery-sourcing requirement.
The bigger surprises this week were lease vehicle qualifications that allow shoppers to lease foreign-assembled vehicles that wouldn’t otherwise qualify for incentives if they were purchased outright. That could allow automakers to capture the credit for leased vehicles and reduce the overall cost of the lease for a vehicle that otherwise wouldn’t qualify.
In short, what qualifies for a full credit on Jan. 1, may not qualify for the full amount after March 1. And what didn’t qualify at all under the new rules may now qualify for a discounted lease. So, if you’re considering buying a new EV, the best time may be the first quarter of 2023. And pack a lunch before crunching the numbers to find out how much you could qualify for under the new plan. You may be at it for a while.
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