Explainer: The 2023 tax credits for electric vehicles will boost their appeal

Washington (AP) — Starting January 1, many Americans will qualify for a tax credit of up to $7,500 for the purchase of an electric vehicle. Credit, part of the changes enacted in the Inflation Reduction Act, It is designed to stimulate electric vehicle sales and reduce greenhouse emissions.

But a complex web of requirements, including where vehicles and batteries must be manufactured to qualify, casts doubt on whether anyone can get the full $7,500 credit next year.

For the first two months of 2023 at least, there have been delays in Treasury rules The new benefit is likely to make full credit temporarily available to consumers Who meet certain income and price limits.

The new law also provides a smaller credit to people who buy a used electric vehicle.

Some electric vehicle brands eligible for a separate tax credit that began in 2010 and expires this year may not qualify for the new credit. Many EV models made by Kia, Hyundai, and Audi, for example, won’t qualify at all because they’re made outside of North America.

The new tax credit, which runs until 2032, aims to make zero-emission cars affordable to more people. Here is a closer look at it:


What’s new for 2023?

A credit of up to $7,500 will be offered to people who purchase some new electric vehicles as well as some gas-electric hybrid vehicles and hydrogen fuel cell vehicles. For people who purchase a used car that runs on battery power, a $4,000 credit will be available.

But the question of which vehicles and which buyers qualify for the credits is complex and will remain uncertain until the Treasury releases the proposed rules in March.

What is known so far is that to qualify for the credit, new EVs must be manufactured in North America. In addition, caps on car prices and buyer income are intended to exclude wealthier buyers.

Starting in March, complex provisions will also govern battery components. Forty percent of battery metal must come from North America or a country with a US free trade agreement or be recycled in North America. (This threshold will eventually reach 80%).

And 50% of the battery parts will have to be manufactured or assembled in North America, eventually rising to 100%.

Starting in 2025, battery minerals cannot come from a “foreign entity concerned,” particularly China and Russia. Battery parts will not be obtainable in those countries starting in 2024 – an annoying hurdle for the auto industry because so much EV metal and parts now come from China.

There are also requirements regarding battery size.


What vehicles qualify?

Because of the many remaining uncertainties, this is not entirely clear.

General Motors and Tesla have the largest number of electric vehicles assembled in North America. Each also makes batteries in the United States, but due to the requirements of where the batteries, metals, and parts are manufactured, it’s likely that buyers of these vehicles will initially receive only half of the tax credit, $3,750. GM says its eligible electric vehicles should be eligible for a $3,750 credit by March, with the full credit available in 2025.

Until the Treasury issues its rules, the requirements governing where metals and parts can be obtained will be waived. This will allow eligible buyers to receive the full $7,500 tax incentive for eligible models as early as 2023.

The DOE says 29 models of plug-in and electric vehicles They were manufactured in North America in 2022 and 2023. They’re from Audi, BMW, Chevrolet, Chrysler, Ford, GMC, Jeep, Lincoln, Lucid, Nissan, Rivian, Tesla, Volvo, Cadillac, Mercedes, and Volkswagen. However, due to price limits or battery size requirements, not all of these car models will qualify for credits.


What about the price?

To qualify, new electric sedans cannot have a sticker price above $55,000. Vans, SUVs, and vans cannot exceed $80,000. This will disqualify two of the higher-priced Tesla models. Although Tesla’s best-selling Model 3 and Y will be eligible, with options, these vehicles may exceed price limits.

The average EV now costs more than $65,000, Kelley Blue Book says, though lower-priced models are coming.


Will I be eligible for credits?

It depends on your income. For new EVs, buyers cannot receive an adjusted gross income higher than $150,000 if single, $300,000 if filing jointly and $225,000 if head of household.

For used EVs, buyers can earn no more than $75,000 if single, $150,000 if jointly registered and $112,500 if head of household.


How will the credit be repaid?

At first, it will be applied to your 2023 tax return, which you file in 2024. Starting in 2024, consumers can transfer the credit to the agency to lower the price of the car when they purchase.


Will the credits boost electric car sales?

Yes, but it will probably take a few years, says Mike Fisk, associate director of S&P Global Mobility. The credit could cause a jump in sales early next year due to the Treasury’s delay in issuing the tougher requirements. But most automakers are now selling all the electric vehicles they make and can’t produce more due to a shortage of parts, including computer chips.

And automakers may have trouble certifying the sourcing of battery metals and parts, which is a requirement for buyers to get full credit. Automakers have been scrambling to move more of their electric vehicle supply chains to the United States


How does USED-EV credit work?

Consumers can get tax credits of up to $4,000 — or 30% of the vehicle price, whichever is less — for the purchase of electric vehicles that are at least two years old. But a used electric vehicle should cost less than $25,000—which is quite a tall order given the starting prices of most electric vehicles on the market. A search on Autotrader.com shows that the Chevy Bolt, Nissan Leaf, and other relatively economical used electric cars are listed at $26,000 or more for models dating back to 2019.

On the other hand, used EVs do not have to be manufactured in North America or comply with battery sourcing requirements. This means, for example, that the 2022 Kia EV6 doesn’t qualify for the new car credit because it’s made in South Korea can qualify for a used car credit if its price drops below $25,000.

“The real impacts will be where these tax breaks will have a significant impact from 2026 to 2032 — a few years into the future — as automakers prepare and volumes increase,” said Chris Harto, senior policy analyst at Consumer Division. Reports Journal.


Why does the government provide credits?

The credits are part of nearly $370 billion in clean energy spending — the largest US investment to combat climate change — signed into law in August by President Joe Biden. Electric vehicles now make up about 5% of new car sales in the United States; Biden has set a target of 50% by 2030.

Electric vehicle sales have skyrocketed, particularly as California and other states move to phase out gas-powered vehicles. The rise of Tesla’s less expensive competitors, Like the Chevy Equinox, with an expected base price of around $30,000, it’s expected to expand the reach of electric vehicles to middle-class households.. S&P Global Mobility expects the electric vehicle share of auto sales to reach 8% next year, 15% by 2025, and 37% by 2030.


Could the requirements be eased to make more electric vehicles eligible?

This is not clear yet. Some US allies chafe at North American manufacturing requirements that exclude electric vehicles made in Europe or South Korea.

The requirements kick Hyundai and Kia out of the credits, at least in the short term. They plan to build new factories for electric and battery cars in Georgia, but they won’t open until 2025. EU countries fear that tax breaks will prompt automakers to move factories to the United States.

The Treasury Department said it will release information by the end of the year about the “projected trend” of battery sourcing and metallurgical requirements. Relaxing the rules to address the concerns of US allies will make more electric vehicles eligible. But it also risks expanding US dependence on foreign supply chains.


Are there credits for charging stations?

If you install an EV charger at home, credits may be available. The new law revives a federal tax credit that expired in 2021; Saves 30% on hardware and installation cost, up to $1,000. It adds a requirement that the shipper must be in a low-income or non-metropolitan area. Companies that install new electric chargers in those areas can get tax credits of up to 30% — up to $100,000 per charger.

Residential EV chargers can cost anywhere from $200 to $1,000; Installation can add several hundred dollars.


So should I buy now or wait?

This is an entirely personal decision.

If you’re tired of volatile gasoline prices and are considering getting an EV, you might want to move on. Purchasing a qualifying electric vehicle in January or February could net you the full $7,500 tax exemption before the stricter requirements take effect in March. Additional government appropriations may also be available.

But if you’re still on the fence, there’s no rush. Consumers who rush to buy now, when relatively few eligible EVs are available, could face dealer price increases. In a few years, technology will improve, and more electric vehicles will qualify for full credits.


Kreischer reported from Detroit. Associated Press writer Fatima Hussain contributed to this report.

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