Electric vehicles are too expensive for most consumers to purchase outright. As such, the U.S. government provided subsidies to EV buyers to make them more affordable and increase EV adoption. More specifically, EV buyers were eligible for up to $7,500 in incentives. After each automaker sold 200,000 vehicles with the incentives, subsequent units would not be eligible for the assistance. The automotive industry has asked the government to remove the 200,000 EV cap because it has the potential to significantly hinder EV adoption.
Democrats have now introduced legislation to eliminate the cap on EV incentives and extend the incentives through 2032. If the Inflation Reduction Act of 2022 passes, it would invest $369 billion in energy security and climate change, including making a significant change to the country’s federal incentives program. On top of extending the electric vehicle incentives, IRA would also encourage automakers to source EV batteries from North America to limit China’s dominance in the EV battery segment.
President Joe Biden states that the Inflation Reduction Act, which mainly consists of parts from the Build Back Better Framework, will cut the federal deficit by more than $300 billion. One of its most important sections, especially for middle- and low-income buyers as well as automakers that build electric vehicles locally, will be how it changes the country’s federal EV incentives program.
As per the IRA, all qualifying electric vehicles will be eligible for tax credits until the end of 2032. Automakers such as Tesla, General Motors and Toyota, which have already surpassed the 200,000 EV cap, stand to benefit from the deal because their EVs will be eligible for the tax credits. According to President Biden, whether the electric cars were manufactured in America will be the main qualifying factor for the tax credit.
Another significant change will be that rather than waiting until they file their taxes to receive the incentive, buyers will now be able to get the EV credit at the point of sale to use as either a down payment or price reduction. This will be a big help to middle- and low-income individuals who are interested in buying an EV but simply can’t afford to spend tens of thousands of dollars on the purchase while waiting months for the tax incentive to kick in so they can receive a refund.
Individuals earning more than $150,000 per year and families making more than $300,000 annually will not qualify for the credits. Furthermore, only EVs under $55,000 and SUVs under $80,000 will be eligible for the incentive. Used electric vehicles that cost $25,000 and are at least two years old will also qualify for a rebate of 30% of the EV’s purchase cost or $4,000.
When these proposals are passed into law, EV manufacturers, including Rivian Automotive Inc. (NASDAQ: RIVN), could attract more buyers given that the incentives provided will now be immediate rather than delayed until tax refunds are issued.
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