The phased-out tax credit offered buyers of electric and plug-in hybrid vehicles purchased after December 31, 2009 a whopping $7,500. The minimum credit was $2,500. Consumers were only eligible once their automaker reached the 200,000-vehicle limit. Under the old system, those who bought electric vehicles such as the Volkswagen ID.4 would receive $7,500, while customers who bought plug-in hybrids would receive less.
The new credit continues to offer $7,500 for electric vehicles, but with important new caveats. The vehicles must now be assembled in the United States. There are also new requirements that the battery metals be either mined or processed domestically or in a country that has a free trade agreement with the United States.
Biden has described the legislation as a way to meet climate goals by reducing emissions and accelerating clean energy adoption. But 70% of the electric, hybrid and fuel cell cars for sale in the United States are now ineligible for credit, including partial credit, and none qualify for the full credit, according to the Alliance for Automotive Innovation, which automakers such as Ford. , GM, Hyundai, Toyota and Volkswagen.
However, the new credit removes the existing 200,000 unit limit on the number of eligible vehicles from each automaker. Tesla vehicles have become ineligible since late 2019, when the company hit its 200,000th vehicle sold and slammed GM the limit in April 2020. Newer electric vehicle manufacturers, such as Rivian and Kia, were still offering customers the $7,500 credit.
“Unfortunately, it’s ruining it for a lot of people,” California-based Jeff Neubauer, who rushed to complete an order for a Lucid electric vehicle before the law went into effect in hopes of getting the credit, told CNN. Business about the new restrictions. “Anyone who buys a car lives in a completely different world.”
‘Lowest Risk, Highest Reward Gambling I’ve Ever Made’
Neubauer originally reserved a Lucid Air in January to serve as a shared vehicle with his wife. He received an email from Lucid last week warning that once the Inflation Reduction Act was signed, the Air would no longer qualify for the $7,500 tax credit. But the bill included a transitional rule that would allow vehicles to qualify under the old rules, provided a buyer “had entered into a binding written contract to” purchase an electric vehicle before Biden signed the legislation.
“We have decided to help reservation holders take advantage of the transition rule by opening a window to place an order for their Lucid Air,” Lucid wrote in an email viewed by CNN Business. “We’re doing this to help those who want to do everything possible to qualify for the federal tax credit.”
It also warned that a buyer’s $300 or $1,000 deposit — depending on the trim line they chose — would become non-refundable.
Neubauer said he had never test-drive the Lucid Air. But he called signing the deal and risking losing his deposit a “no-brainer.” Neubauer said he has owned several electric vehicles and is comfortable with them.
“If for some reason my wife doesn’t like it when it comes out, I’m out $300,” Neubauer said.
Oregon resident Jase Daggett had a similar reaction after hearing from Rivian about the new tax credit.
“Signing the contract will make $100 of your existing $1,000 deposit non-refundable and help you remain eligible for the $7,500 tax credit,” Rivian wrote in an email sent Wednesday. “Once the Inflation Reduction Act goes into effect, customers will lose this opportunity and will be subject to the new restrictions.”
Daggett has never test-drive the Rivian R1T pickup, but relies on word of mouth and YouTube reviews. He said he signed the contract within “about four minutes” of receiving the email.
“Lowest risk, highest reward gambling I’ve ever made,” Daggett told CNN Business.
Other buyers were reluctant to sign, especially for a test drive. Jeff Douglass said he received two emails from Lucid about finalizing his reservation so he could potentially receive the tax credit.
“I’ve told them every time they asked me, ‘I want a test drive, or I don’t want to hear anything else,'” Douglass said.
A push for more domestic purchasing, with new unknowns
Manchin was concerned about the US’s reliance on foreign countries for EV components. China is dominant in the metal processing of electric vehicles and the production of batteries.
“I don’t believe we should build a mode of transport on the backs of foreign supply chains,” Manchin said recently. “I will not do it.”
The bill requires that by 2023, 40% of the critical minerals in an electric car battery must be mined or processed in the US or a country where the US has a free trade agreement. That 40% will gradually increase to 80% in 2027. Rules will have to be introduced to determine exactly how a vehicle meets the thresholds.
Utah resident Devin Hathcock who pre-ordered an electric Nissan Ariya in November 2021 said he feared he would miss the credit when he first learned about the Inflation Reduction Act.
“If they’re really trying to encourage people to use electric cars, that was really the wrong way to go,” Hathcock told CNN Business.
When Nissan sent him an email offering to sign a binding contract in the hopes of getting the credit, he signed immediately.
“I felt like I had nothing to lose,” he said. “And everything to win.”
