There’s been a lot of confusion about what electric vehicles will meet the necessary requirements to be eligible for the full federal tax credit under the new requirements set out by the Inflation Reduction Act (IRA). The IRA sets out new requirements for vehicles to be manufactured in North America and guidelines on battery composition and where battery materials come from. For consumers that don’t want to deal with the headache of having to figure out if their car is eligible for the tax credit or not can bypass all of the requirements by leasing a new EV.
The U.S. Treasury Department released additional information on the clean vehicle provisions of the IRA before the end of December with more guidance on changes that will go into effect on January 1, 2023. As Reuters points out, one of the major changes that the U.S. Treasury Department is making for 2023 is allowing consumers that lease a new EV to take advantage of the full $7,500 federal tax credit regardless of where the vehicle is built or what percentage of battery materials come from North America. This makes vehicles that are made outside of North America, like ones from Hyundai, Kia, Toyota, Subaru, Mazda, and more to be eligible for the federal tax credit.
This could be a massive incentive for consumers to choose to lease their EV instead of purchasing one. It also appeases automakers and organizations that claimed the IRA was unfair and violated rules set forth by the World Trade Organization (WTO). The outlet claims that the new loophole could be used to reduce the price to lease an EV and will draw more consumers to electric cars. We expect most financing companies or dealerships to take the full amount of the federal tax credit that the leased EV is eligible for, but pass on the savings to shoppers through reduced lease payments.
While there are some new rules for consumers looking to lease an EV, the U.S. Treasury Department hasn’t made any changes for shoppers looking to purchase a new EV. Things are more confusing than ever, as The U.S. Treasury Department confirmed that it would be delaying its full guidance on the battery and critical minerals portion of the tax credit until after the first quarter of 2023. Consumers that are looking to purchase a vehicle will still need to find an EV that’s built in North America and is priced under $80,000 for SUVs, pickups, and vans, or $55,000 for cars. With dealerships placing massive markups onto vehicles, the main determining factor for pricing will be the EV’s MSRP and “not the actual price you paid for the vehicle.”
The IRA has regulations on where automakers source critical materials for use in EV batteries, but they’re not expected to go into effect until the U.S. Treasury Department releases all of its guidelines on the subject. Where automakers get their critical materials is expected to make up half of the federal tax credit amount, or $3,750. With the U.S. Treasury Department delaying its guidance on the critical materials part of the tax credit, we expect most EVs that are built in North America to be eligible for the full $7,500 federal tax credit in the first quarter of 2023. What happens after that is a mystery.
Source: Department of Treasury, IRS, Reuters
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