buying: Some Electric Vehicle Buyers Are Delaying Their Order Amid Confusion Over Tax Credits

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New legislation could mean a $7,500 EV credit for some, or a loss of the credit for others on orders already in progress, depending on the car they want to buy

  Some Electric Vehicle Buyers Are Delaying Their Order Amid Confusion Over Tax Credits © Provided by Consumer Reports

By Keith Barry

After months of enduring exorbitant gas prices, Tom Martin of Woodstock, Ill., decided it was time to trade in his Mazda CX-5 for an electric Chevrolet Bolt EUV. He’d even recently placed an order after a test drive. But now it looks like the federal government could offer him a better deal with proposed legislation that would add a tax credit of up to $7,500, as long as Martin waits until next year to make his purchase.

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He’s now deciding whether to cancel his current order. “I will certainly have to make an adjustment on this order, as that $7,500 savings—a 20 percent discount, basically—is too good to pass up,” he told Consumer Reports in an email.

Martin is just one of many would-be EV buyers we’ve heard from trying to parse the confusing details of the new electric vehicle tax credits offered in the Inflation Reduction Act, which is expected to be passed later this week.

The proposed new rules mean that buyers who are currently in the market for an EV must carefully consider their own situations and the specifics of cars they’re interested in purchasing, even though many of the rules are not yet finalized. CR offers a guide pointing to vehicles most likely to qualify for tax credits. We can’t guarantee eligibility and suggest buyers consult a tax professional.

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Amid the confusion, some buyers have contacted CR to say that they’re delaying orders so their cars qualify, while others say they’re trying to speed their purchases up before their particular credit under the current law disappears. A few automakers have changed their purchase processes to ensure buyers can maximize their tax savings. Ultimately, some experts worry that the ensuing confusion may slow adoption of EVs in the near future, until it becomes clear which vehicles qualify for which credits.

“Over the short term, this new bill is adding a lot of complexity and confusion for consumers trying to buy an EV right now,” says Chris Harto, CR’s senior policy analyst for transportation and energy. “However, over the longer term, as automakers adjust to the new requirements, we hope it will ensure that there are many more affordable EVs available for middle-class Americans in the years to come.”

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Until President Biden signs the bill into law, a prior EV tax credit remains the law: Buyers can currently get up to $7,500 back on their taxes as long as the car they buy is from a manufacturer that hasn’t yet sold 200,000 electric (or eligible plug-in hybrid) vehicles. GM—along with Tesla and Toyota—already met that cap, so Martin’s Bolt is currently no longer eligible. But if the law is passed, that cap will be lifted for next year, and some vehicles from GM and Tesla will once again qualify for a credit, including the Bolt, in addition to used EVs, which would be a first.

Martin says the potential savings is worth the wait, but driving his old car will still cost him in the meantime—especially if gas prices remain high—so he wants to get into an EV as soon as possible. “My commute daily is over $20 when gas prices are above $5 a gallon. That’s untenable,” he tells CR.

Other EV buyers have found themselves in a race against time. Starting the moment the law is passed, another new rule in the bill states that vehicles assembled outside of North America will no longer qualify for a tax credit. That meant John Choiniere of Everett, Wash., put his plans to buy a Volkswagen ID.4 on hold, because the 2022 model he wanted to purchase is made in Germany and therefore will likely become ineligible. Inventory shortages mean he can’t buy one before the law is signed.

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“The $7,500 difference, if we lose the ability to get the tax credit, is probably going to change the yes/no decision on whether we feel we can afford one of these cars right now,” Choiniere told CR. The other electric cars he and his wife had considered, the Kia EV6 and Hyundai Ioniq 5, are made in Korea and will also lose eligibility, and snagging one immediately won’t work as he says his local dealers have told him there’s a four-week wait to buy one in his area.

So Choiniere looked into waiting for a 2023 ID.4, which will be made in Chattanooga, Tenn. But with that decision, he potentially encounters another hurdle: A new requirement that EV battery minerals and components be sourced from specific countries, the details of which are still being finalized. A Volkswagen spokesperson told CR that the 2023 ID.4 could be eligible for the full tax credit, but that the specifics have yet to be fully worked out.

  Some Electric Vehicle Buyers Are Delaying Their Order Amid Confusion Over Tax Credits © Provided by Consumer Reports

A U.S.-built Volkswagen ID.4 rolling off the assembly line in Chattanooga, Tenn.

Photo: Volkswagen

Choiniere said his local Volkswagen dealership didn’t offer much clarity. “At the dealership level, they hadn’t received anything from VW yet to inform them.”

Other key provisions in the proposed legislation include:

Income restrictions: Buyers who register cars after Dec. 31, 2022, will have to meet certain income limits. At the same time, electric sedans, hatchbacks, and station wagons that cost more than $55,000, and electric SUVs and trucks that cost more than $80,000 will no longer be eligible for a tax credit.

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“Made in China” rules: Vehicles with battery components sourced from a “foreign entity of concern”—including China, where the vast majority of battery components and minerals come from—will no longer qualify for a tax credit if they are placed in service after Dec. 31, 2023. If the battery only contains minerals from such a country, the car won’t qualify for a tax credit if it’s placed in service after Dec. 31, 2024.

Jim Chapman, a tax attorney and senior specialist editor on federal taxation for Thomson Reuters Checkpoint, says that consumers will have to take deadlines into account when deciding when to make their purchases. For example, a high-earner or someone who is considering a luxury EV should consider buying their car before the end of this year to qualify for the credit. “On the other hand, someone who has their eye on a Tesla or General Motors EV should consider waiting until January 2023 to buy their vehicle,” he says, as that’s when the 200,000 car cap will be lifted.

A few companies are going a step further. Fisker, which plans to start producing its Austrian-built Ocean EV on November 17, says it will help current reservation-holders convert their reservations into written binding contracts before the new law takes effect so owners can take advantage of the current tax credit.

In a press release, the company wrote that it is relying on a provision in the law called a “transition rule,” which allows for a grace period to make the necessary contractual change. However, it added a footnote that Fisker is not providing legal or tax advice, and that buyers may very well end up not qualifying.

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Rivian is offering a similar option, emailing customers whose preordered R1T pickups and R1S SUVs are too expensive to qualify for the tax credit with an option to sign a binding agreement to purchase the vehicles.

Lucid emailed its reservation holders to tell them that the transition rule “may maintain eligibility for Lucid customers who enter into a contract to purchase their Lucid Air before the bill is signed.”

Choiniere, who told CR he started shopping for an electric vehicle in order to reduce his family’s use of fossil fuels, said he was concerned that the new rules around tax credits would slow adoption of EVs in the short term, even though he was happy about other climate-related aspects of the IRA.

“Overall, big picture, I’m still happy that this massive climate bill has passed. It’s a good thing, big picture, even though it’s a bad thing for me in the short term,” Choiniere said.

Consumer Reports is an independent, nonprofit organization that works side by side with consumers to create a fairer, safer, and healthier world. CR does not endorse products or services, and does not accept advertising. Copyright © 2022, Consumer Reports, Inc.

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