Senate deal would overhaul electric vehicle tax credits – Kelley Blue Book

Senate negotiations yesterday revived a bill long considered dead. Although primarily designed to fight inflation, the bill includes measures that would radically change the way Americans buy electric cars.

Many still in doubt

It’s not yet law and the deal could still fall apart. Sen. Joe Manchin (DW.V.) brought the measure to life when he announced his support yesterday. He is believed to have the support of most Senate Democrats, who could pass the measure on their own without Republican support. But until Sen. Kyrsten Sinema (D-AZ.) speaks out, some still wonder if the bill can pass.

If so, most analysts expect it to easily make it through the House of Representatives and get the president’s signature. The bill includes several provisions that would reshape the electric vehicle (EV) market in the United States

Initial discounts, no manufacturing cap

The federal government already offers a tax incentive of up to $7,500 to Americans who purchase a new electric or plug-in hybrid vehicle (PHEV). But this measure is a tax refund, not a rebate. Buyers must purchase the car, then wait until tax season and claim the amount on their next tax return.

Studies have shown that Americans would prefer an upfront reduction to a tax refund. Many would even accept a lower amount to get it sooner, which could save the federal government billions.

It only applies to the first 200,000 electric vehicles built by a manufacturer. Some car manufacturers have already exceeded this threshold. The rebate is no longer available on electric vehicles from Tesla or GM and has started to end for Toyota and Lexus. Our analysis shows that Nissan is also approaching the ceiling.

It only applies to new vehicles, so buyers of used electric vehicles receive no federal assistance.

The bill would change all of those factors.

The Cut Inflation Act of 2022 would have:

  • Remove 200,000 vehicle cap, restoring incentives for Tesla, GM and Toyota EV and PHEV
  • Change discount to discount at time of sale
  • Introducing a new $4,000 tax credit on used EV sales

New price caps, revenue limits

However, it would also prevent some cars and buyers from qualifying for the credit.

Among other changes, the agreement:

  • Limit credits to low-emission trucks, SUVs and vans with Manufacturer’s Suggested Retail Prices (MSRP) up to $80,000
  • Limit credits to low-emission cars with an MSRP under $55,000
  • Restrict credits to people filing adjusted gross incomes of $150,000 or less, $225,000 for those filing as head of household and $300,000 for co-filers

It is unclear if the price caps and income limits would adjust each year.

The measures would prevent many electric vehicles from benefiting from the tax credit. Note – although removing the 200,000 vehicle cap would make Tesla vehicles eligible for the credit again, most Tesla products are too expensive to qualify for the new caps.

Every Model Y would qualify for the new $80,000 price cap for SUVs. Some Model 3 trims would qualify under the sedan’s price cap of $55,000. No Model X or Model S would qualify.

Built in North America

The bill also includes provisions limiting tax credits based on where vehicles or components are manufactured. Media reports contradict each other on the effect of these provisions.

Some say a provision would limit tax credits to vehicles assembled in North America, while others point out that the provision only applies to battery components. All sources seem to agree that the bill would require critical battery materials to come from countries with which the United States has trade agreements.

These restrictions could prevent many electric and plug-in hybrid vehicles from qualifying. The Hyundai Ioniq 5, a hot new electric vehicle that recently won the 2022 World Car of the Year award, for example, is currently built in South Korea. Hyundai plans to move assembly to the United States

The bill remains a proposal for the time being. The details of the deal could still change, and automakers will no doubt push to try to change them.

But, if you’re looking for an EV or PHEV and can afford to wait to buy, it might be worth pausing your search to see if it can pass. We’ll follow the story for you as you approach a vote or a miss.

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