(NewsNation) — Those looking to go green with their next car purchase could save thousands of dollars via electric vehicle tax credits. But auto industry groups warn that new requirements under the Inflation Reduction Act mean most EVs won’t qualify for the full amount — at least for now.
Under the likely-to-be-passed federal legislation, consumers will be able to receive a tax credit of up to $4,000 for buying a used electric vehicle and up to $7,500 for a new one.
But that’s assuming your vehicle meets the new criteria established by Congress. Industry experts say there’s a good chance it won’t.
“The $7,500 credit might exist on paper but no vehicles will qualify for this purchase incentive over the next few years,” John Bozzella, CEO of the Alliance for Automotive Automation, said in a statement.
In order to qualify for the full credit, new EVs must be assembled in North America and contain batteries composed of minerals mined from countries with whom the U.S. has a free trade agreement. The battery’s components must also be sourced on the continent.
The rules are intended to incentivize domestic manufacturing and mining in an industry that has become heavily reliant on China, where lithium and other minerals are used to produce EV batteries.
In order to soften the blow, the bill’s sourcing requirements start small but ramp up over time. For example, next year 40% of the metals in a vehicle’s battery would have to come from North America in order to qualify for the full EV credit. By 2027 that threshold goes up to 80%.
Bozzella estimates that 70% of the more than 70 electric, hydrogen or plug-in hybrid models currently available would not qualify as soon as the bill passes. Once the additional sourcing requirement kicks in, there’s a chance no vehicles would qualify for the full credit, he wrote.
Other industry experts agree that the new criteria will be disruptive in the near term but say the legislation represents an important step forward in bringing supply chains and jobs back to the United States.
“In the short term, it’s going to be tough for consumers, it’s going to be confusing,” said Chris Harto, a senior policy analyst at Consumer Reports. “But over the long term, this is going to be ultimately a big net positive for EV adoption.”
Harto pointed out that many of the most popular electric vehicles today, including EVs made by Tesla, Toyota and GM, no longer qualify for the existing federal tax credit because of a provision that caps car manufacturers at 200,000 vehicles sold. Under the new rules, the vehicle sales cap has been removed.
The elimination of the sales cap is just one of many changes to the existing tax credit structure. Others include:
- Any vehicle over $55,000, or truck, SUV or van over $80,000, won’t be eligible.
- Individuals making more than $150,000 a year won’t be eligible.
- Buyers of used EVs, who previously did not qualify, will get a tax credit of up to $4,000, but only if they buy from a dealership.
Today the average new electric vehicle costs $66,000, according to Kelley Blue Book, but Harto expects that cost to drop over the next decade as automakers shift their focus to EVs.
“If you’re willing to wait a couple of years to get into an EV, there should be a lot of options for you,” he said.
As the bill currently stands, the new tax credits would be valid through 2032.
On Thursday, the European Union expressed concern that the new EV tax credit plan would break World Trade Organization rules and discriminate against European producers.
“Broadening the list of eligible countries will provide more options to more quickly reduce our reliance on China,” Bozzella wrote. “These and other modest revisions to the EV tax credit can meet the needs of today’s consumers, build America’s industrial base and enhance our national security.”