Under current regulations, EV buyers get a $7,500 tax credit when buying an EV, but that full credit is limited to the first 200,000 EVs sold by an EV. given manufacturer. After that, the amount of the tax credit is reduced in the following year and eventually eliminated completely. Tax credits and sales caps also apply to plug-in hybrid electric vehicles.
The proposed legislation would remove the cap of 200,000 vehicles per manufacturer, a victory for some of the biggest names in the electric vehicle market. Automakers like Tesla and GM that have already sold more than 200,000 electric cars can no longer offer the tax credits, essentially raising the price of their vehicles relative to their competitors. Other automakers are also on the verge of losing access to credits. Toyota, for example, can currently only offer reduced tax credits.
“We remain hopeful that Congress will advance legislation to address energy and economic security that includes an amendment to the electric vehicle tax credit removing[automaker] GM spokesman Matt Ybarra said. “We will review the draft language and look forward to working with Congress on these provisions that would ensure a level playing field for all. [automakers].”
The bill would, however, place more limits on the vehicles eligible for the credits. For example, there are requirements for vehicles and batteries to be manufactured, at least largely, in North America. At least 50% of battery components must be manufactured in North America, increasing by 10% per year to reach 100% of battery components by 2029.
Additionally, there are income limits for buyers to qualify for tax credits. They can have taxable income not exceeding $300,000 per year for those filing jointly, or $150,000 for those filing as individuals.
Additionally, there are price caps on the vehicles that will qualify. For trucks, vans and plug-in SUVs, the manufacturer’s suggested retail price must not exceed $80,000; for all other types of vehicles, such as sedans and sports cars, the price limit would be $55,000.
The rules that distinguish between different types of vehicles, for the purposes of Environmental Protection Agency regulations, can be somewhat opaque, however. This allows automakers to make vehicles that may look like a wagon, but are actually legally referred to as SUVs. The Subaru Outback, for example, is considered an SUV thanks, in part, to its higher than normal ride height, despite its perception by some as a station wagon. The Honda HR-V and Nissan Rogue Sport, meanwhile, are classified by the EPA as compact wagons. The bill calls for the creation of rules that would be similar to those used by the EPA.
One of the biggest changes, however, is that electric vehicle buyers wouldn’t have to wait to file their taxes to get the tax credit, said Sam Abuelsamid, electric vehicle analyst at Guidehouse Insights. Instead, the incentive would be treated as a discount and applied at the time of purchase at the dealership, he said.
“By removing it from the top, you can actually lower your monthly payment,” he said.
The bill also includes a tax credit for the purchase of a used electric vehicle. Currently, tax credits are only offered for a new electric vehicle, which critics say favors the wealthy who can afford expensive new vehicles. Under the bill, buyers of used electric vehicles would be eligible for a $4,000 credit or a 30% reduction on the cost of the vehicle, whichever is lower. But there are also caveats here. Used electric vehicles can only cost a maximum of $25,000 to qualify for a tax credit, and only if they are sold by a licensed car dealership; it must also be the first time the car has been sold.
These new tax credit rules, if passed, would expire in 2032.
Toyota and Tesla did not immediately respond to requests for comment on the new legislation. Tesla generally does not respond to media inquiries.
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