As consumers’ support for green practices increase and shoppers become more motivated to act sustainably, electric vehicles and plug-in hybrids are having a momentum. Naturally, it helped that Washington pushed hard for the eco-transition by implementing various green energy laws. In the automotive industry alone, the Biden administration has developed ambitions national targets that would see the electric vehicles fleet make up half of all new car sales by 2030. But despite a genuine interest in sustainability, most customers are opting for a new electric vehicle because of surging gasoline prices and the Federal EV tax credit.
Taking away an important incentive could stall Biden’s green agenda. And unfortunately, that’s exactly what the administration did last week, when it complicated the entire process by canceling some benefits associated with the Federal EV tax credit. Currently, not every buyer can take advantage of the $7,500 tax credit when buying a new electric vehicle, or the $4,000 tax credit when they acquire a used EV. This means that only single buyers with incomes up to $150,000 a year and couples who file taxes jointly and earn up to $300,000 will be eligible. Furthermore, even those that qualify can no longer select whatever EV they want because most electric vehicles no longer qualify.
Which Electric Vehicles Are Still Eligible For Tax Credits
Forbes reports that out of the 65 plug-in hybrid and all-electric vehicles sold in the United States, only 16 still qualify for the federal tax credit incentive from now until the end of the year. Most of the imported EVs and plug-in hybrids no longer qualify for the credit. Under the new ruling, eligible buyers need to select a vehicle that was assembled in the U.S. and has 50 percent of the battery components coming from the U.S. Moreover, 40 percent of the battery’s “critical materials” should also come from North America or nations that have in place free trade agreements with the U.S.
To complicate things further, the 50 percent “battery components” clause will change over the years. As such, in 2024, the new set standard is 60 percent, in 2026, it climbs to 70 percent, in 2027 to 80 percent, in 2028 to 90 percent, whereas in 2029, it reaches 100 percent. Meanwhile, the clause related to the battery’s “critical materials” also records its own changes. Accordingly, in 2024 it surges to 50 percent, in 2025 to 60 percent, in 2026 to 70 percent, and in 2027 to 80 percent. It is safe to say that this change will give the EV industry a serious punch, killing the recent momentum. Automakers have already denounced the bill, saying that it sets unrealistic targets. Elsewhere, the European Union, South Korea and global automakers which assemble their vehicles outside the United States have criticized the bill.
As of now, the non-American car models that are still eligible for the tax credit are Mercedes-Benz EQS, BMW X5 PHEV, BMW 3 Series PHEV, Nissan Leaf, Audi Q5 PHEV, and Volvo S60 Recharge.
EV Tax Credits Ban: When Does The Rule Go Into Effect?
Consumers that hope the bill will go into effect next year will have a rude awakening. In fact, the bill has gone into effect on August 16, the day when President Biden signed the Inflation Reduction Act. This means that every electric vehicle and plug-in-hybrid-electric vehicle that is acquired after August 16 is subjected to the new law. The lucky few who knew what was coming and bought their EVs or PHEVs before August 16 got surely have a better deal than others.
Tax Credits: How Can Buyers Know Which Domestic EV Models Are Still Eligible?
For fans of domestic brands like Tesla and GM, there’s some positive news: the bill has removed the sales cap, so these automakers are eligible again for the tax credit. According to Forbes, the domestic cars that might be eligible this year includes: Chrysler Pacifica Hybrid, Ford Escape PHEV, Ford F-150 Lightning, Ford Mustang Mach-E, Jeep Wrangler PHEV, Lincoln Aviator PHEV, Lincoln Corsair PHEV, Lucid Air, Rivian R1T and Rivian R1S.
Meanwhile, for 2023 the vehicles that could qualify for the federal tax credit are: Tesla Model 3 (2022), Tesla Model Y (2022), Chevrolet Bolt EV (2022-2023), Chevrolet Bolt EUV (2022), Chevrolet Blazer EV, Chevrolet Silverado EV, Cadillac Lyriq (2023), Ford F-150 Lightning (2022), Ford Mustang Mach-E (2022) and some Volkswagen ID.4 assembled in Tennessee.
Given the complexity of the eligibility standards, it is difficult to establish with precision which car brand and vehicle model still qualifies for the federal tax credit. That's why buyers should talk with a licensed dealer or retailer about their options. Buyers shouldn't base their decision on this list, and they should make informed decisions.