The U.S. Department of Energy and the Internal Revenue Service did not waste any time issuing guidance on the effects of the new EV tax credit rules contained in the freshly signed Inflation Reduction Act of 2022.
The DOE has issued a preliminary list of the electric and plug-in hybrid vehicles that are made in North America, and the IRS issued guidance on how to determine if a given vehicle qualifies for the tax credit between today and the end of the year.
Some old rules still apply, some new rules don’t apply yet
The calculus is complicated by the way the new law takes effect. Some provisions, including the requirement that any tax-credited vehicle must undergo final assembly in North America, take effect immediately. Others, including the requirements for battery mineral and component sourcing in North America or free-trade nations, don’t take effect until Jan. 1, 2023.
“That means any EVs assembled outside of North America are now no longer eligible for federal tax breaks since the IRA was signed yesterday,” said Sam Abuelsamid, principal analyst, E-Mobility, Guidehouse Insights.
“However, North American-assembled EVs are still eligible under the old rules. That means Rivian, Lucid, Ford and Nissan are still eligible until the end of the year. North American-built plug-in hybrids from BMW, Mercedes-Benz and Audi also qualify along with the 2023 model year Volkswagen ID.4, which is built in Chattanooga.”
In general, the old rules for tax credits are gone, but one critical limitation remains. The manufacturer sales cap that now excludes certain vehicles from the tax credit is still in place through the end of 2022.
“GM and Tesla still don’t qualify,” Abuelsamid said.
The grace period
Per the IRS guidance, if a consumer entered into a binding contract to purchase a qualifying vehicle under the old rules before Aug. 16, but has not yet taken delivery, the tax credit still applies under the old rules.
This means that contracted customers waiting on vehicles such as the Kia EV6 or Hyundai Kona Electric that are not made in North America will still be able to claim their tax credit if the vehicles are delivered this year, but those entering new purchase agreements after Aug. 16 will not.
Will there be a sales rush?
Since many of the vehicles on the DOE’s list will fall off at the end of the calendar year due to battery sourcing requirements that take effect for 2023, it might be reasonable to expect a sales surge on those vehicles. However, that’s unlikely to happen for the simple reason that manufacturers are already selling every EV and PHEV that they can build.
“They’re not going to have any problem selling all of them between now and the end of the year anyway,” said Stephanie Brinley, principal analyst at IHS Markit. “We’re seeing reports of Lucid and some of the other startups trying to change their reservations to contracted orders.”
Converting reservations to confirmed orders will work only if the automakers can deliver this year.
“Vehicles must be delivered by Dec. 31 and there simply isn’t enough supply to support a surge in deliveries,” Abuelsamid said. “I would expect a similar pace to what we’ve seen so far this year, except for some increase for the Ford Mustang Mach-E and F-150 Lightning, which are ramping up production.”
That sentiment is supported by automakers, including those newly excluded because of the final assembly requirements.
“Customer demand is still far outpacing available supply,” said James Bell, Kia’s head of Corporate Communications.
The good list
The Department of Energy created a list of Electric Vehicles Assembled in North America because some vehicles are assembled in multiple locations. Both the IRS and Dept. of Energy recommend that consumers use the NHTSA VIN Decoder to determine the exact manufacturing facility of any potential tax creditable vehicle.
The list includes some vehicles that have generally been overlooked, including the Audi Q5 PHEV, which is made in San José Chiapa, Mexico, and the Mercedes-Benz EQS SUV, which is made in Tuscaloosa, Alabama. Additionally, Mercedes-Benz has opened a battery manufacturing facility in Bibb County, Alabama, which began producing batteries earlier this year.
“We’re proud to create new, future-proof jobs to build all-electric SUVs ‘Made in the USA’ at a plant that is such an established part of our production family for 25 years,” said Ola Källenius, chairman of the Board of Management of Mercedes-Benz Group AG.
The list of vehicles qualifying for tax credits through the end of the year includes BMW’s plug-ins, the 330e sedan and X5 xDrive45e SUV. Qualifying Stellantis options include the Chrysler Pacifica PHEV and the Jeep Grand Cherokee and Wrangler PHEVs.
Ford’s Escape PHEV and Transit van plug-in join the all-electric Fords on the list, as do the Lincoln Aviator and Corsair plug-ins. The Nissan Leaf still qualifies, as do the Rivian and Lucid EVs. Finally, Volvo’s S60 Recharge plug-in still qualifies for a tax credit, as it is assembled in Ridgeville, South Carolina.
However, none of these models are guaranteed to qualify for a tax credit in 2023, and the Dept. of Energy and IRS have not yet issued guidance for next year.