Hi there! With electric vehicles exploding in popularity, you might be considering going electric for your next car purchase. But important changes to the valuable federal EV tax credit may impact the deals on EVs this year.
The recently passed Inflation Reduction Act includes massive revisions to the tax incentives that have boosted EV sales over the past decade. In fact, estimates show a full 70% of the electric models previously benefiting will lose access to credits up to $7,500 in 2024.
I know, that‘s a bummer if you had your eye on certain makes and models. But don‘t despair! In this post, I‘ll provide everything you need to know about the changing EV tax credit so you can make the most informed buying decision.
A Bit of History on the EV Tax Credit
First, let‘s look at a quick history of the federal electric vehicle tax credit, which has been around since 2010. The goal was to incentivize consumers to choose emission-free EVs while also helping jumpstart the nascent electric car industry.
Originally, the credit provided up to $7,500 off a tax bill for qualifying new EV purchases, based on battery size. This juicy incentive stimulated demand, and EV purchases grew rapidly from negligible numbers in 2010 to over 5% of all car sales in the U.S. today.
The tax credit has enjoyed bipartisan support all along as a way to boost domestic manufacturing and enhance energy independence. To date, over 2 million EVs have benefitted from the program, saving buyers thousands.
The IRA Brings Sweeping Changes
But the landscape changed dramatically when President Biden signed the historic Inflation Reduction Act into law on August 16, 2022.
While the massive bill tackles issues like inflation, healthcare, and climate change investments, it also effects major revisions to the beloved EV tax credit.
Most impactful was the addition of requirements around North American assembly. The law specified that, to qualify for credits, final assembly of EVs must occur in the U.S., Canada, or Mexico.
This provision alone threatens credits for up to 70% of the 72 electric models that previously qualified, by some estimates. Foreign automakers like Toyota, Hyundai, and Polestar that build overseas have already lost eligibility. Brands like BMW and Mercedes will also phase out.
Breaking Down Which EVs Are Losing Out
So exactly which EV makes and models are about to lose access to the $7,500 tax credit? Let‘s take a look at a breakdown:
| Ineligible EV Brands | Eligible EV Brands |
|---|---|
| Toyota | Ford |
| Hyundai | GM |
| Porsche | Tesla |
| Polestar | Rivian |
| Kia | Nissan |
| Volkswagen | Chrysler |
| Audi | Volvo |
As you can see, even brands known for their EVs like Kia and Volkswagen will now miss out on tax credit eligibility. Going forward, domestic automakers and a few foreign brands building in North America dominate the list.
Weighing the Complex Pros and Cons
There are some clear pros to this manufacturing focus – it may encourage more production on U.S. soil, which supports jobs and local economies. Less overseas supply chain dependence improves stability too.
But limiting choice also risks slowing EV adoption if fewer affordable imported options remain. And some auto jobs could shift to Canada/Mexico with their newly favorable assembly loophole.
For buyers, you may lament the loss of tax-credit-eligible Hondas or Hyundais. But remember, you can still likely find used EV deals, plus state/local incentives often sweeten purchase deals.
All in all, the changing federal tax credit aims to balance environmental goals with boosting domestic industry. But the transition could be bumpy and require compromises.
Which EVs Are Safe Bets for 2023?
If you‘re car shopping now, which EV purchases are likely to still score you savings?
I‘d look at new Ford models like the Mustang Mach-E and F-150 Lightning. These highly anticipated vehicles just started deliveries in the past couple years.
The Chevy Bolt and Bolt EUV are also sure bets, giving a low-priced EV option keeping credits.
And Tesla‘s whole lineup, amazingly, now qualifies after previously hitting a sales cap. The Model 3, Model S, Model X, and Model Y should all retain eligibility.
Basically, if US-built EVs fit your needs, focus your search there while we‘re in this transitional phase.
Tips for Maximizing Savings
How else can you maximize potential federal tax credit savings if you buy an EV in 2024? Here are my top tips:
-
Double check assembly details – for brands like BMW or Mercedes, check the VIN or call the dealer to confirm US/North America assembly.
-
Ask about binding contracts – if you made a purchase agreement pre-August 16, you may still qualify for previous credits even if discontinued.
-
Explore state/local incentives – bonuses in places like CA and NJ can offset loss of the federal credit.
-
Look into used EVs – you can now get up to $4,000 tax credit on a used EV purchase.
-
Wait and see – more US assembly plants are coming online soon to unlock credits again.
The Outlook for EVs Going Forward
While the EV tax credit changes shake up the status quo now, the impact going forward remains uncertain. Will automakers rapidly adapt to build more EVs stateside? Will new incentives emerge to spur demand?
Market watchers suggest a small slowdown in 2024 sales growth, followed by rebounding growth as domestic production scales up.
Of course, policies may continue to morph. Credits are set to phase out in 2032, giving time to tweak approaches. The future of EVs promises to be an exciting ride!
In closing, I hope breaking down the IRA changes helps you navigate the new EV tax credit landscape. Although choices are narrowed today, compelling electric options remain. Stay tuned for more updates as EV adoption evolves in the years ahead!