SHOPSMART AUTOS – CUSTOMER INFORMATION – JULY 25, 2021 (PT.2)
A Bigger Tax Credit For Going Electric: What It Could Mean For Consumers
Roadblocks
Volkswagen’s ID.4 electric crossover is currently built in Germany, but production will migrate to Chattanooga, Tennessee next year. The automaker does not use a labor union so it would only qualify only for a $10,000 tax credit under the new measure. Volkswagen Even the base $7,500 tax credit seems to be coming under fire from some, although it has survived unchallenged since 2008. Several Republican senators have recently said they believe most EV tax credits now go to well-to-do car buyers who don’t really need them. That criticism is supported by several studies of EV-buyer incomes, but fails to consider that, to date, many EVs have been luxury or high-performance models with correspondingly high price tags. EVs for middle- and lower-income buyers are just now starting to show up on automakers’ future products lists. Sen. Lindsay Graham, R-S.C., also has argued that with many automakers voluntarily announcing shifts to EV production over the next decade, tax credits and other federal incentives aren’t needed because “it’s just a matter of time until most cars…will be running on something other than gasoline.” The Chevrolet Bolt is the only EV on sale today that would be eligible for the full $12,500 credit, and that’s because the measure lifts the cap that makes General Motors’ vehicles ineligible for the current $7,500 credit. Chevrolet
More than Tax Credits
The bill’s transportation section does more than boost the tax credit many plug-in vehicle purchasers can claim. It would end the current vehicle sales cap that has cost Tesla and General Motors their eligibility and is about to end Nissan’s eligibility as well. Presently, an automaker’s EVs and plug-in hybrids are no longer eligible once that manufacturer has sold 200,000 qualified vehicles in the U.S. Under the new measure, eligibility wouldn’t end until the year in which 50% of all new vehicles sold in the U.S. were qualified EVs and plug-in hybrids. That’s expected to take a decade or more. And then there would be a three-year phase out. The full rebate still would be available in the first year after the sales cap was reached, a 75% credit would be available in the second year and a 50% credit would apply in the third year, with no tax credit availability after that. The congressional Budget Office has estimated the cost of the EV rebate proposal at $31.6 billion over the next 10 years. That’s a small part of the estimated $259 billion cost of the entire Clean Energy plan. Hyundai‘s Kona Electric is one of the more affordable EVs on the market with a starting price of $37,190. It’s built in South Korea, however, so it would only qualify for the base $7,500 tax credit, equal to what is available now (2022 Kona pictured here). Hyundai
What it Means for Consumers
The big news for EV shoppers may not be the tax credit increases but that the measure turns the credit into a refund for eligible vehicles purchased as of Jan. 1, 2022. That means that if an EV buyer qualified for the entire $12,500 credit, for instance, but only owed $8,000 in taxes for the year, the IRS would send a refund check for the $4,500 difference. Under the present rules, the credit can zero out a buyer’s tax bill for the year in which the vehicle was purchased, but the U.S. won’t send a rebate check for the difference. An EV buyer with a tax bill of $5,000, for instance, would only be able to claim a $5,000 credit. Many EV advocates believe the credit should be converted to a direct rebate that could be used immediately as part of a down payment, lowering the initial cost of getting into an EV or PHEV. It’s unclear if there is any sentiment in the Senate to make that change. Tesla’s Model 3 is a top seller and the automaker is ineligible for tax credits. This makes leasing an attractive option for consumers since the credit plays no part in purchase consideration. Tesla One key restriction the new measure wouldn’t change is limiting participation to buyers. The bill keeps intact language that makes only the original registered owner eligible for the tax credit. Consumers who lease and hope to partake of the federal incentive must find a leasing agency willing to share some of the credit. When vehicles are leased, the owner is usually the leasing agency—often an arm of the vehicle manufacturer. In practice, many lessors apply all or part of the credit to help lower the cost of the EV lease, but that’s not required. The measure not only imposes an $80,000 price cap on the retail cost of qualifying vehicles, it limits the total that any buyer can claim to 30% of the value of the vehicle. For a new EV or plug-in hybrid with a $30,000 sticker price, for instance, the maximum tax credit would be $9,000 even if the vehicle were built by union members in a factory in the U.S. To qualify for the full $7,500 tax credit and any incremental boosts, a plug-in electric vehicle needs a rechargeable battery with at least 16 kilowatt-hours capacity. Minimum eligibility—for a $2,917 tax credit—requires a 5-kWh battery, and the amount increases by $417 for every kilowatt-hour of capacity past that, up to 16 kWh and beyond. Those rules remain unchanged in the new measure. Toyota‘s Mirai is one of a few fuel-cell electric vehicles on the market. The infrastructure for hydrogen is small, but refueling is quick and the range is long, which makes it an attractive proposition. It’s also being tested as a viable alternative fuel in long-haul trucking. Toyota
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