Consider this diary a PSA/Disclaimer combo :)
The old Federal EV tax credit regulations, enacted ~2008 under the W. Bush misadministration and extended with Obama’s Stimulus Act, were simple.
They were also reasonably generous and effective for times when EVs were a rarity and folks like us (driving a Nissan Leaf since 2012) had to keep answering questions like “Is it a hybrid?” “Does it really have no gas engine?”
But for the long term, they were pretty stupid. The two most stupid things about the old credit were:
- It applied regardless of the vehicle’s price and of the buyer’s income. This has been a huge early boost to Tesla in particular, but also a misdirection of resources and an annoying talking point for EV-haters on both the right and left side of the map, slandering the entire technology as “Subsidized Toys for the Rich”.
- Even worse: the credit had an automaker-specific sunset rule. The quarter after an automaker reaches 200,000 cumulative EV sales since 2010 (which in a ~15M cars/year market, is still far short of mainstream success), the credit got halved, and within a year it disappeared completely for this automaker’s EVs.
This second clause has actively punished automakers who had bet on EVs early and big. Indeed, despite trying to game the quarter-based schedule, a couple of quarters of near-mainstream-level Model 3 sales were enough to start Tesla’s sunset in January 2019. GM, with its typical cluelessness, crashed into the sunset only a quarter later.
And so, the only two American automakers serious about EVs during the 2010s were locked out of the Federal credit. To add insult to injury, no foreign automaker ran out of its 200k “quota”, not even Nissan.
Lucky for Tesla, by 2019 the Model 3 was already a screeching success and it was also pretty much the only EV game in the American scene. Not so lucky for GM, but don’t shed tears for them: during Trump years, these turncoats actually sided with his various anti-EV junk policies and time-wasting lawsuits.
Fast forward 4 years: famously, the new credit passed under last summer’s Inflation Reduction Act (IRA) solves this problem. But…. But…. it introduces soooo many others.
So many problems, that even the IRS doesn’t know exactly what to tell EV buyers about their credits. Because of this, until more detailed instructions arrive — expected March or April — the credit is a free-for-most right now. Hence the “Get it NOW” recommendation in my title. If you wish to stop reading the diary here, be sure to check this excellent up-to-date NPR article about the credit.
Otherwise, follow me below the fold for more.
Let’s place the blame where it really belongs
Once again, we owe sooo many thanks for the new complications to the GQP, 100% of whose Congress members had voted against the IRA without even pretending to engage in any constructive discussion about climate action. While “GQP” evokes images of pro-insurrection clowns, don’t forget that Speaker Pelosi had 2021-2022 House Dems united behind not just the IRA, but earlier more ambitious versions. They didn’t need no GQP votes. The problem was Senate Republicans, include supposedly “reasonable” folks like Collins, Murkowski, Toomey and Romney, to name a few.
None of these and other “reasonable” GQPsters has lifted a finger to help do something about climate catastrophe, and in particular Americans’ oil addiction. Heck, the Tesla+GM sunset writing had been on the wall since 2016-2017. Hillary pledged to extend and even increase the credit in her 2016 campaign. Trump OTOH, after getting elected quickly added anti-EV idiocy to his endless list of cynical culture wars — and Republicans have been fully on board with him. The 1st House version of the 2017 treasury-robbery tax reform included a complete and sudden death to the credit. Fortunately that bit fell out of the final bill, but GQPsters continued trying to end the credit in 2018-9 (this one would actually switch from a credit to a penalty), and even in 2022 right after the IRA’s passage. The anti-EV energy usually comes from the drooling insurrectionist wings of the GQP (a.k.a., most of them), but I don’t recall ever hearing any of the “””reasonable””” Rs rise up to support EV credits. The latest 2022 anti-credit attempt even had Toomey as co-sponsor.
So if the EV credits had any chance of not dying out completely for all practical purposes, it all came down to the IRA and to the weakest link in the previous Senate’s 50-Dem chain: Joe Manchin, who to his defense is better than any R Senator, despite hailing from a far redder state than many GQP Senators. But… as on many other legislative efforts, Manchin has really screwed the pooch on the EV credit.
Someone told Manchin that the Chinese control most of the world’s battery-metal refining processes (true), and he wanted to make sure Federal resources go into changing that and setting up alternate supply chains (super-legit). Apparently (and the NPR story agrees), It is Manchin who has forced everyone else’s hands to saddle the new consumer EV credit with this highly complex task (DING DING DING! Worst Idea since Wonder Bread!).
So: It’s (needlessly) Complicated ;(
- Now, and actually since August 2022, only EVs with “final assembly in North America” qualify for the credit. This immediately causes diplomatic headache with longtime allies and officially-desired trade partners like the EU and South Korea, who don’t have such protectionist clauses in their own EV incentive rules. It forces buyers of e.g., the excellent VW ID.4 (at least as good as the Tesla Model Y, and $10-20k cheaper) to make sure they are buying the US-assembled ones and not ones imported built from Germany (both might sit side-by-side on dealer lots). It also completely excludes excellent less-expensive choices such as Korean-made EVs, until they stand up American EV assembly lines (which they’ve been in the process of doing). Let us not forget that the Trump years have managed to render the US EV market, particularly for non-Tesla EVs, comatose in comparison to the red-hot markets of China and Europe, so until recently foreign automakers really had no incentive to hurry up and build EV plants here rather than invest elsewhere.
- Once the IRS issues guidance, the $7.5k credit will be sliced up into bits and pieces, with the full amount going only to teacher’s-pet EVs whose entire supply chain is considered “clean” enough. As the NPR story concludes, given how thoroughly Chinese industry dominates these chains, not even auto-industry experts have a clue at the moment regarding exactly which EVs will make the cut. Most America-assembled EVs will get at least part of the credit — but per the experts, none is in the clear yet regarding getting the full credit in 2023. Yes, not even Teslas, nor the Nissan Leaf (assembled Stateside since 2013) are completely guaranteed yet.
The (temporary) good news is that until said guidance is issued, the only restriction is final North-American assembly. Every EV assembled on this continent is fully eligible. Specifically, for the first time in ~4 years, you can get a $7.5k Fed rebate on a new GM or Tesla EV.*
* Some caveats still apply:
- Just like the old credit, for 2023 the new credit is given only after you file your 2023 taxes, and is capped by your full tax liability. This isn’t the amount you owe after all calculations, but it still requires something like a $60-70k gross income, which many people particularly those filing as individuals, don’t have. Fortunately, starting 2024 this silliness goes away, and the automaker/dealer will be able to grant you the credit at point-of-sale, no more filing or de-facto minimum income needed. Why they didn’t make this switch in 2023, beats me.
- Now there is also an upper income cap: $300k/150k adjusted gross income for couples/individuals. This won’t go away in 2024, and it does seem sensible although perhaps a tad tight.
- The EV must cost <$55k for cars and <$80k for SUVs/minivans/light-trucks. These are reasonable caps (although perhaps a tad loose IMHO), and almost all leading EV countries enact such caps. But even on this simple front, the IRS popped up to throw another curveball, initially classifying some crossovers such as the Model Y and ID.4 as “cars”, only to relent last week, retroactive to January 1.
All in all, I won’t be surprised if anyone decides to sit it out until 2024 when credits become instant and the eligibility dust settles. But if you do have the means and energy to get a new car this year, please do consider getting an EV before the IRS issues guidance. Your options will be greater.
Lastly: the used EV credit
If in the market for a used EV: buying one that’s 2+ years old and cost <$25k, will get you a $4k credit, but only for couples/singles with <$150k/75k income. This is a brand-new credit, definitely designed to help spread EVs into more modest-income sectors of the public, while still relevant for ~60-70% of the population. One problem: due to America’s Trump-assisted “EV slumber”, the vast majority of EVs sold here in 2018-2021 were Teslas, and those aren’t affordable even as used cars. Another problem is yet another regulatory curveball: the used EV must be purchased from a dealer. Once again: why? Beats me.
But seek and you shall find. There should still about a million used EVs (including both pure-electrics and plug-in hybrids) in this price range, roaming about on US roads.
I hope this helps!