With the nation’s most significant climate bill likely to become law in days, many Americans might be wondering how it could affect them. The sweeping legislation contains a slew of incentives aimed at helping individuals who want to make more climate-friendly choices — chief among them new tax credits for electric vehicles.
The bill, dubbed the Inflation Reduction Act, made it through the Senate over the weekend. The House is expected to approve it Friday, sending it to President Biden to sign into law.
While the tax credits have been widely heralded as a way to make new and used electric vehicles, or EVs, more affordable, many of the stipulations determining eligibility — manufacturing requirements that a number of current models likely won’t be able to meet in the short term — have sparked confusion among people scrambling to figure out how their plans to purchase these cars could be affected.
The public confusion around the electric vehicle incentives isn’t all that surprising, said Chris Harto, a Consumer Reports senior sustainability policy analyst for transportation and energy.
“Unfortunately, in the short term, this change to the tax credits makes an already challenging EV market even more challenging,” Harto said. “In the long run, it’s going to be great for consumers and great for especially middle-income mainstream consumers getting into more affordable EVs down the road.”
Here’s what Harto and other experts say you need to know about the electric vehicle tax credits and how to potentially take advantage of them.
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When do the new EV tax credits go into effect, and what’s changing?
As it stands, many of the bill’s electric vehicle provisions are expected to go into effect for cars put into service after Dec. 31, 2022, and will stay in place through 2032, according to Consumer Reports. For new electric vehicles, a $7,500 tax credit could be applied at the point of sale. Those who purchase used EVs could be eligible for up to a $4,000 credit. The legislation would also do away with a previous limit that kept EV manufacturers from being able to offer tax credits once they sold 200,000 vehicles.
But eligibility to receive the credits depends on income as well as how much the new or used vehicle costs. Additionally, new electric vehicles could become ineligible if they don’t meet certain manufacturing requirements, such as being assembled in North America or using critical minerals and components that are sourced domestically or from the country’s free-trade-agreement partners. Some automakers have warned these targets could be impossible to hit, which in turn might make it more challenging for consumers to find qualifying EVs.
Meanwhile, the existing EV consumer tax credit is expected to no longer be available after Biden signs the bill into law, according to a spokesperson for the Zero Emission Transportation Association. People should still be able to claim the credit if they purchase an EV before the signing — provided that the vehicle is eligible under the current requirements. That means an electric car from a manufacturer that has reached the 200,000 vehicle cap, such as Tesla or General Motors, wouldn’t be eligible.
In a statement, Rivian, an electric vehicle automaker that has not reached the sales limit, said it is “working to help interested preorder holders and customers obtain a written, binding contract to purchase and secure EV tax credit eligibility before new restrictions take effect. We’ll be sharing more information and next steps with customers directly.”
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Should I buy an EV now or wait?
If you’ve already been in the market for an EV and have found one available to buy, “definitely go ahead and finish the transaction and get it done,” Harto said. But, he noted, it’s probably “going to be challenging for somebody who wasn’t in the market for a new car and saw that this change is coming and is trying to jump into the market and take advantage of the situation quickly.”
For one thing, there are a large number of people who want EVs and a limited supply — a situation that, Harto said, “has created long wait times and just frankly, absurd dealer markups on EVs.” He anticipates things might only become worse in the immediate future as consumers scramble for cars. There also currently isn’t a tax credit available for used EVs.
“We’re in a turbulent time of rapid change in the market,” he said. “There’s going to be more vehicles, there’s going to be cheaper vehicles in the future. Eventually, a lot of vehicles are going to qualify for the credit again, so there’s not a whole lot of risk in waiting to buy an EV.”
People trying to buy cars now should be mindful of potential dealer markups, Harto said. “It’s not going to do you a whole lot of good to get a $7,500 tax credit if the dealer is going to charge you [$10,000] or $20,000 over MSRP for the vehicle.”
If you’re worried that the EV you want might not be eligible in the future, remember that the new credits are expected to remain until 2032. Even if automakers don’t have vehicles that qualify until 2025 or 2026, the bill “still gives them many, many years of eligibility for the credits,” Harto said.
“The common sense thing would be to say: ‘Look, don’t worry. These rebates aren’t going anywhere. They’re fully funded to be around for a while. Do them when they make sense,’ ” said Jonathan Foley, executive director of Project Drawdown, a climate nonprofit.
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How could the availability of eligible EVs be affected?
In the short term, changes to the EV tax credit are probably “going to eliminate a lot of vehicles from being eligible,” Harto said.
For instance, he noted, cars not assembled in North America are expected to immediately become ineligible. At present, such vehicles could include those from Hyundai, Kia and Toyota, among others, according to Consumer Reports.
Other models of cars, regardless of where they are assembled, would not qualify because they are too expensive. To be eligible for a credit, new EVs that are vans, SUVs or pickup trucks can’t exceed $80,000, while other types of vehicles can’t cost more than $55,000. Used EVs could be eligible if they cost no more than $25,000. A list of cars compiled by Consumer Reports that probably won’t qualify because of their price tags include some Teslas, several BMWs and other models depending on the vehicles’ modifications.
In the long term, the new EV incentives are “likely to be a massive improvement over the existing tax credit system,” Harto said. “It will really help middle-class Americans afford EVs. They just may have to wait for a couple more years” for automakers to adapt to the new requirements and vehicle supply to increase.
Although the new manufacturing requirements could be “a high bar to clear,” the existing vehicle cap was probably already making it difficult for many people to buy popular EVs that would be eligible for the tax credit, said Leah Stokes, an associate professor of environmental politics at the University of California at Santa Barbara. “A current EV tax credit basically doesn’t exist for most EVs that Americans buy,” Stokes said, noting several manufacturers of popular vehicles have reached the sales limit.
What’s more, one aspect of the EV market is likely to remain unchanged, regardless of the tax law that is in place, Foley said: Every year, “some cars will be eligible, some won’t.”
“Right now, it’s because of the cap on individual companies,” he said. “In the future, it might be who’s got the batteries that are meeting the standard.”
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Which EVs could be eligible?
Trying to figure out which vehicles would qualify for tax credits under the bill could be tricky, as eligibility is expected to change depending on whether automakers are able to meet the manufacturing requirements.
Based on cost alone, eligible vehicles could include several Chevrolet models, Teslas, Fords and the Nissan Leaf, among others, according to Consumer Reports. But keep in mind that certain modifications and special features could push a vehicle over the price cap.
Many used EVs that are below the stated price cap would also be eligible and aren’t subject to the same manufacturing requirements as new models.