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This is a critical provision of the Inflation Reduction Act that will make 70% of U.S. EVs ineligible for the tax credit. It is the main factor preventing the sales of EVs, along with high mark-ups. This article discusses the reasons why EVs are not yet widely available and the potential impact of the Inflation Reduction Act on the electric car market.
Inflation Reduction Act’s provision on sourcing and manufacturing renders 70% of U.S. EVs ineligible for tax credit
This proposed change is part of a broader energy, tax, and drug pricing bill. It could affect sales and demand for electric vehicles. And it could jeopardize President Biden’s goal of having half of new vehicles on the road by 2030. That’s why carmakers are urging Congress to reconsider the bill, and to make it less restrictive.
If the Inflation Reduction Act passes as currently written, many of these EVs will no longer qualify for the tax credit. A lobbying group for the EV industry is warning that the provisions could render tax credits useless within the next few years. According to the Alliance for Automotive Innovation, the proposed changes will prevent nearly all new EVs from being eligible for the tax credit.
The new Inflation Reduction Act includes several changes to the electric vehicle tax credit, starting in 2023. The Internal Revenue Service and Treasury will soon release more information regarding these changes and other potential tax credits for EVs. In the meantime, consumers and car companies should be prepared for uncertainty. The goal is to encourage people to switch to electric vehicles to help the environment and reduce their carbon footprint.
High mark-ups on EVs
The price of an electric car has skyrocketed in recent years, with some models commanding $46,000 and even more. This is despite the fact that the demand for electric cars is higher than the supply, which means that dealerships are forced to mark them up to make up for the high costs. While this may seem unjust, there are some ways to avoid the price hike. For example, manufacturers should increase the production of battery packs and electric cars to ease the shortage.
In early March, the average price for an EV in the U.S. was $66,742, about 26% more than one year earlier. The rising cost of gasoline may have contributed to this spike. Meanwhile, prices of hybrids and diesels rose by 14%. In comparison, traditional gasoline-powered cars sold at rates about $8000 lower than EVSs. But these price hikes are likely to continue.
The Biden administration has said it wants half of all new vehicles to be electric. In the second quarter of 2021, EVs made up 3.6 percent of U.S. vehicle sales. Tesla is currently leading the way, but other major carmakers are also making headway in this growing market. According to AutoPacific, EV sales will hit 670,000 in 2022. That’s not bad, but it also means that dealerships will charge higher prices to lure customers.
2022 deadline
It seems unlikely that 70 percent of U.S. EVs will be eligible for the federal tax credit by the 2022 deadline, but it might be possible to make up some ground before the deadline. The key is to make sure that automakers get enough mining permits to build the batteries, and they should also find a list of countries that will work with them to build the cars. The goal is for EVs to make up 40% of total sales in the next decade.
The government is making it harder to buy green cars by creating barriers. President Biden is expected to sign a bill Tuesday that will change the methodology used to award EV tax credits. The new bill will tighten eligibility requirements and leave some EV customers out in the cold. The automakers have been working with customers to get binding contracts so that they can qualify for credits even if they haven’t yet received their vehicle.
In addition, the new rules require EV manufacturers to source their raw materials in the U.S. rather than China. The new regulations will also force manufacturers to develop new supply chains in order to meet the requirements. Because of the new rules, manufacturers of electric vehicles are already making major investments to build batteries in the U.S. However, they might have a difficult time supplying their factories with raw materials in North America.