With Congress failing to act on a proposed expansion of federal EV tax credits, Toyota could find itself at a serious disadvantage as it rolls out its first battery-electric vehicle, the bZ4X.
Ironically, once it loses those incentives, buyers could find reason to consider the Subaru Solterra, the all-electric model jointly developed with Toyota and nearly an identical twin of the bZ4X.
Unless Congress acts, Toyota is set to become the latest automaker to reach the 200,000 sales threshold that triggers the phase out of its federal EV incentives. Tesla and General Motors have already lost their federal tax credits, and other automakers are soon to follow.
Congressional limits triggered
When Congress first approved tax credits for electrified vehicles, it aimed to boost interest in the technology by helping offset the higher cost of battery-based models. But the thinking was that once sales reached a certain point, EVs would become more cost-competitive with vehicles using internal combustion engines.
That hasn’t happened, at least not yet. And industry experts worry the loss of tax credits could short-circuit demand for EVs, especially the plug-in hybrids and battery-electric vehicles that are the primary beneficiaries.
The threshold was set at 200,000 vehicles and, once a manufacturer passes that point they enter a yearlong phaseout before the credits vanish entirely. Tesla hit that mark in the third quarter of 2018, losing its incentives entirely as of January 2020. GM followed shortly afterwards, products like the Chevrolet Bolt EV no longer qualifying for incentives as of March 2020.
Toyota likely next
At least two, possibly three automakers could top the 200,000 mark this year. That includes Toyota which had sold more than 183,000 qualifying vehicles through the end of 2021 and another 8,421 by the end of the first quarter of this year, according to industry data. That means it can sell less than 9,000 more plug-ins, along with the bZ4X, before the phaseout begins.
Under federal guidelines, the maximum $7,500 credit is cut in half two quarters after the sales trigger is tripped — for a maximum $3,750. Two quarters later the incentives drop again by half, to $1,875. They then vanish entirely.
That means Toyota could lose its incentives completely by sometime late in 2023. But not so for Subaru. The smaller Japanese automaker was relatively late to electrify its line-up, with sales of barely 5,000 PHEVs by the end of 2021. It is only now getting ready to roll out its first pure electric model, the Solterra.
With only the slightest tweaks, such as badging, the Solterra is identical to the Toyota bZ4X, the two carmakers developing them jointly. The Subaru EV is built alongside the bZ4X on Toyota Motomachi assembly line in Japan.
Impact uncertain
How much of an impact this will have on bZ4X sales and whether it will see customers shift to Solterra is uncertain.
Toyota is “planning” for the phasedown of its incentives, U.S. sales chief Bob Carter told Automotive News, confirming that the automaker should top the 200,000 sales threshold during this current quarter.
What Toyota might do, Carter didn’t say, nor did he indicate what impact the loss of tax incentives could have.
Tesla experienced a bit of a hit initially, according to its sales data, though the automaker attempted to push forward deliveries so that as many customers as possible would qualify for the federal givebacks. It subsequently cut prices on some models.
Toyota is in a peculiar position having a near-identical model that will continue to be offered by another manufacturer for some time with incentives. But more and more automakers are approaching the 200,000 mark.
Next in line
Nissan ended 2021 having sold more than 164,000 qualifying vehicles, primarily the Leaf battery-electric vehicle. That leaves it facing a phaseout just as it gets ready to roll out an entirely new BEV, the Ariya.
Ford, meanwhile, had sold nearly 161,000 vehicles for which owners could claim credits by the end of 2021, including the Mustang Mach-E, one of the nation’s best-selling all-electric models. Ford is now getting ready to roll out the new F-150 Lightning, and claims to have more than 200,000 advance orders in hand. Only a fraction of those buyers will get incentives of any amount, depending on when they take delivery.
BMW had sold more 137,000 qualified vehicles by the end of 2021 and could be next to lose incentives, just as it ramps up its own BEV line-up with the debut of the i4, iX and i7 models.
The Biden administration last year proposed extending the EV tax credits while also increasing them to as much as $12,500. But the plan is part of the Build Back Better program that has failed to win the necessary support in Congress. It’s unclear whether lawmakers might break the incentive plan out and vote on it separately at this point.
