Dazed and confused: Electric vehicle buyers struggle to navigate new tax credits | Company


David Di Pinza of Temecula, Calif., would like to replace his aging 2013 Ford C-Max hybrid with an electric vehicle.

He is a cashier at a local casino and planned to dip into his 401(k) savings to pay for the purchase. The prospect of a $7,500 rebate would make an electric vehicle a viable option.

So when Congress approved point-of-sale rebates on electric vehicles through the Inflation Reduction Act, Di Pinza was thrilled. But the more he read about the law’s new requirements, the more he realized his options would be limited — so limited, industry advocates say, that no existing electric vehicles would qualify once the policy takes full effect. .

The new law changed an existing $7,500 income tax credit to be offered as an upfront rebate and lifted a manufacturer cap that prevented popular models like the Chevrolet Bolt or Tesla Model Y from qualifying. .

However, it added requirements that vehicles must be assembled in North America and use increasing amounts of critical minerals sourced from the United States or free trade agreement countries and North American battery components. . It also caps the prices of eligible vehicles and the income of buyers.

Experts say that in the long term this will likely make electric vehicles – still significantly more expensive than petrol cars, on average – more accessible.

“At the end of the day, this will be really great for EV buyers,” said Chris Harto, senior transportation and energy policy analyst at Consumer Reports. “But I think we’re going to see some confusion and uncertainty over the next two years as automakers adapt and different parts of the rules come into effect.”

As this transition begins, consumers like Di Pinza must bet on whether to buy an EV now with limited options and discounts, or wait and risk missing the boat on a tailored tax credit. that the industry changes.

It’s a complicated and urgent decision that also comes as supply chain challenges have pushed wait times for electric vehicles to months.

“It would be nice if there was some clarity on which cars will really be ‘eligible,'” Di Pinza said. If the requirements disqualify all existing models in the short term, “I think all of us who would like to buy an electric vehicle and can’t afford it without the tax credits are going to be really pissed off and just discouraged. “

For years, consumers have been able to get up to $7,500 off what they owe in taxes at the end of the year when they buy a new electric vehicle.

But that meant people might not get the full value of the credit and had to have the money up front for an electric vehicle, which cost more than $66,000 on average, compared to more than $44. $000 for a gas-powered non-luxury vehicle, according to Kelley Blue. Book.

There was also a sales cap of 200,000 vehicles per manufacturer, making companies ineligible once they produced a popular electric vehicle. Tesla Inc., General Motors Co. and Toyota Motor Corp. have already reached the ceiling.

Michigan Democratic Rep. Dan Kildee of Flint and Senator Debbie Stabenow of Lansing hoped to change that. But their proposal — which favored unions and, by extension, the Detroit Three — was tweaked by conservative Democratic Sen. Joe Manchin of West Virginia to only reward automakers with credits if they adhere to the new centered demands. on the United States.

The Cut Inflation Act signed into law Aug. 16 included new tax credits that immediately required vehicles to be assembled in North America, leaving only about 30% of existing electric vehicles eligible.

As of January 2023, vans, SUVs and pickups must cost less than $80,000 and sedans less than $55,000. Only joint filers earning less than $300,000 and single filers earning less than $150,000 will be eligible. The old cap of 200,000 vehicles will be lifted.

Once these requirements are met, the vehicle is eligible for $3,750 if at least 40% of the minerals in its battery come from the United States or free trade agreement countries and the remaining $3,750 if at least 50% of the battery components are from North America.

At this point, industry experts believe consumers will no longer have any qualifying options as the supply chain for critical minerals is dominated by China and automakers continue to expand domestic battery production. Analysts say automakers will eventually be able to meet the requirements, but it will take years.

It’s not until 2024 that the point-of-sale rebate will come into effect, driving down vehicle prices for consumers up front.

For potential EV buyers, this change in timing is causing some turbulence.

Companies like Volkswagen AG, Nissan Motor Co. and Rivian Automotive Inc. offered buyers fast-track purchase agreements in the final days before the bill was signed to lock in credits under the old system.

Message boards and EV forums are full of discussions about how buyers plan to move forward and whether the vehicle of their choice will qualify.

Many noted that dealerships and automakers were raising prices so high it would make credit almost moot, such as Ford Motor Co. announcing it would raise the price of the F-150 Lightning to between $6,000 and $8,500 a year. week before the new policy becomes law.

Kevin Pitts, owner of a Long Island entertainment company, was considering buying a tax-credit-eligible Kia EV6. But because it is assembled in South Korea, it lost eligibility on August 16 when the new law took effect. Local dealers told him that there would be a $5,000 to $10,000 markup on the car anyway due to production backlogs.

He is now looking at a Volkswagen ID.4, which will be produced in Chattanooga, Tennessee. But dealers can’t tell him if he’ll be eligible for critical mineral requirements when he arrives in eight months or more.

“It’s like the wild Wild West,” he said.

Di Pinza placed an order for a Chevrolet Bolt and was told it would arrive between September and January. But now he plans not to take it, opting instead to wait until 2024, when he will have more certainty that it meets the criteria and that he can use the exceptional discount.

“There are four-dimensional checks going on about whether or not it’s a good idea ‘to buy a certain vehicle right now,’ said Mike Ramsey, transportation and mobility analyst for Gartner Inc. “I would proceed like you’re not going to get a tax credit and I hope you will.”

Consumer Reports’ Harto recommends buyers who really want an electric vehicle and have found a vehicle that fits their budget without the tax credit to “go ahead and buy it.”

But he added that consumers who are able and willing to wait can expect more options and lower prices on electric vehicles in the years to come as automakers ramp up production.

With the 200,000 vehicle cap lifted, automakers will be incentivized to build affordable electric vehicles at scale. For example, the 2023 Chevrolet Bolt has an MSRP of $26,500.

“If they can build it to those requirements, consumers will be able to get into that vehicle for less than $20,000,” Harto said. “It’s hard to get a new vehicle for less than $20,000.”

Ramsey said that in addition to the adoption of electric vehicles, the new credits are likely to progress towards Manchin’s main priority for electric vehicles – the creation of a regional supply chain for the resources that the government American considers essential for the future.

“If we think we’re going to end up with a big mix of electric vehicles in the future, we need to do something that encourages industrial policy,” Ramsey said. “Much greater incentive to set up battery factories, assembly factories and basic materials at the national level.”

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