Understanding EV Tax Credits and How MotorVero Can Help You Benefit

The Inflation Reduction Act and Its Impact on EV Tax Credits

In August 2022, President Biden signed the Inflation Reduction Act, bringing about significant changes to healthcare, tax regulations, and climate policies. For electric vehicle (EV) buyers, the most crucial element lies in the revised federal tax incentives for EVs. These changes not only impact current and future car buyers but also encourage automakers to adapt to evolving market dynamics. With MotorVero by your side, navigating these tax credits is easier and more efficient.

From "Electric Vehicle Tax Credit" to "Clean Vehicle Tax Credit"

The newly coined term "Clean Vehicle Tax Credit" widens the scope of vehicles that qualify. Beyond fully electric cars, it includes plug-in hybrid electric vehicles (PHEVs) with a battery capacity of four to seven kWh and hydrogen fuel cell vehicles. If you're considering an alternative low-emission vehicle, MotorVero can help you determine whether your vehicle qualifies for the credit.

Immediate vs. Deferred Benefits: Timing Matters

While the revised tax credit policies take effect immediately, customers who had already purchased or signed agreements for an EV before August 16, 2022, can still claim credits under the previous system. New buyers must, however, adhere to the updated regulations. The availability of the clean vehicle tax credit is a limited opportunity that expires in 2032, offering up to $7,500 in incentives for new vehicles. This presents an opportunity for prospective EV buyers to act fast and maximize the benefits. Used vehicles also qualify for credits up to $4,000, providing substantial cost savings for those buying second-hand EVs.

Expanding Eligibility: Removal of the 200,000-Vehicle Cap

The former federal incentives had a cap of 200,000 vehicles per automaker, resulting in popular brands like Tesla, Chevrolet, and Toyota becoming ineligible. However, the new law removes this cap, allowing all manufacturers to offer credits regardless of previous sales figures. This change encourages more manufacturers to produce electric and hybrid vehicles while giving shoppers more options, thus making the market more competitive. At MotorVero, our mission is to keep you informed and help you find vehicles that qualify for these revised incentives.

Using Tax Credits at the Time of Purchase

Starting in 2024, buyers will be able to use their clean vehicle tax credits directly at the dealership as a discount, rather than waiting until tax time for reimbursement. This move could transform the EV purchasing process by reducing the upfront cost of the car, making the transition to electric vehicles even more appealing for many. MotorVero is committed to supporting dealerships and individuals in accessing these credits as seamlessly as possible, potentially lowering prices right at the point of sale.

Income Restrictions on Clean Vehicle Tax Credits

The updated tax credit regulations now include income limitations, which could impact the availability of credits for high-earning individuals. For new EVs, single filers need a modified adjusted gross income (MAGI) of under $150,000, with married couples capped at $300,000 and heads of household at $225,000. For used EVs, these thresholds drop to $75,000 for individuals, $150,000 for married couples, and $112,500 for heads of household.

Vehicle Pricing Limits for EV Tax Credits

There are also limits on the vehicle price for qualification. Pickup trucks, SUVs, and vans must have an MSRP below $80,000, while sedans, hatchbacks, and coupes must be priced below $55,000. For used cars, they must cost less than $25,000 and be sold by a dealership to be eligible. Tesla has responded to these caps by lowering prices on several models, ensuring their vehicles continue to qualify for federal incentives. MotorVero helps dealerships navigate these requirements to ensure the vehicles they offer meet these pricing restrictions and provide customers with the best options available.

Battery and Component Sourcing Requirements

The new law also incorporates specific requirements regarding battery component sourcing and final assembly. New vehicles must be assembled in North America to qualify for the tax credit. Buyers can verify the assembly location by using a VIN decoder from the National Highway Traffic Safety Administration (NHTSA). In addition, starting in March 2023, at least 40% of battery minerals must be sourced from the U.S. or a U.S. free-trade partner or recycled in North America. This requirement will increase annually, reaching an 80% target for minerals and 100% for components by the end of the decade.

Partial Credits Based on Compliance

When a vehicle meets only part of these requirements—such as sourcing 60% of its battery components from eligible suppliers but only 20% of its minerals—it will only be eligible for half of the total credit, equaling $3,750. This gradual transition in sourcing requirements aims to reduce the dependency on foreign suppliers and encourages North American production, ultimately benefiting consumers and manufacturers alike.

Acting Now: Limited Window for Full Tax Credit

There is a small window for buyers to acquire a vehicle and still qualify for the full $7,500 tax credit without meeting the stringent sourcing requirements. This opportunity will likely close by March 2023. It is important to ensure the vehicle is delivered before these stricter conditions come into play. At MotorVero, we work closely with our partner dealerships to facilitate faster transactions, ensuring buyers can take full advantage of these incentives.

Challenges Ahead for Automakers and Buyers

Once the sourcing requirements are in place, fewer vehicles will be eligible for the full tax credit. As automakers scramble to adjust their supply chains to North American sources, certain models—particularly those using batteries or components from restricted regions like China or Russia—may see increased prices. Senator Joe Manchin has introduced a bill to expedite the implementation of these sourcing requirements, though this legislation is yet to be enacted.

Impact on EV Affordability and Availability

The revised EV tax credit plan is designed to make clean energy vehicles more affordable, especially for middle-class consumers who may not have previously been able to afford an EV. Automakers like General Motors, Tesla, and Ford are already making adjustments to comply with these new requirements, making certain models like the Chevy Bolt and lower-priced Teslas instantly eligible for credits. However, other vehicles like the Ford F-150 Lightning and luxury models from BMW or Mercedes may become more expensive due to the phase-out of federal support.

Incentives for Used EV Buyers

In a move aimed at expanding accessibility, the new law introduces tax incentives for used electric vehicles. EVs that are at least two years old, sold at under $25,000 by a dealership, qualify for a $4,000 tax credit or up to 30% of the vehicle's sale price, whichever is less. This change is designed to make the transition to cleaner vehicles possible for a broader audience, emphasizing cost-effectiveness and making sustainability accessible. MotorVero provides a wide range of used EVs that meet these criteria, offering an affordable entry point into the electric vehicle market.

The Long-Term Picture: Driving Manufacturing Towards North America

In the long term, these incentives and restrictions are expected to drive the localization of manufacturing. With requirements for North American production and mineral sourcing, automakers will need to rethink their supply chains. While this transition may introduce challenges in the short term—such as limited vehicle availability and increased prices for non-compliant models—it aims to create a more sustainable and economically resilient automotive sector. At MotorVero, we stay ahead of these changes to provide our customers with the most up-to-date information, helping them make informed choices.

MotorVero's Role in Making EV Ownership Accessible

MotorVero is committed to helping both dealerships and individual buyers navigate these evolving federal EV tax credits. Whether you're looking to purchase a new or used EV, MotorVero provides resources and tools to determine eligibility, access tax credits, and understand the full financial benefits of transitioning to electric. As automakers adapt to these new regulations, MotorVero aims to connect consumers with vehicles that align with their budget while maximizing available incentives.

The Bottom Line

The revamped clean vehicle tax credit program is a strategic step towards making electric vehicles a viable option for a larger audience. With the removal of the 200,000-unit cap, new income and price eligibility restrictions, and changes to battery sourcing requirements, the goal is clear: to make electric vehicles more affordable and their production more sustainable. With MotorVero's assistance, consumers can more easily navigate these complexities, ensuring that the path to electric vehicle ownership is as smooth as possible.