Incentive Adjustment – The EV Tax Incentive Change 🚗

Incentive Adjustment – The EV Tax Incentive Change

President Joe Biden has had unique economic policies as he looks to transition the United States from fossil fuels to renewable energy while still managing the current economy. One of the most important policies lies in the Inflation Reduction Act, a policy that has been controversial not in America but in foreign countries due to the grand incentives for EV companies.

New restrictions for the $7,500 tax credit have been set in place, and you can argue that they are a bit more equal. Customers now must buy from a US brand, and the vehicle needs to meet a certain percentage of its battery parts and minerals coming from a qualifying country. This leaves just 16 models that are eligible for a full or partial tax credit, with Tesla, Ford, GM, and Stellantis making up those 16. Notable excluded brands include Lucid and Rivian, who were deemed too expensive to qualify. According to the Alliance for Automotive Innovation, the percentage of EV models eligible for the tax credit has fallen from 92 percent to 43 percent since the Inflation Reduction Act, showing how strict the guidelines have been for the tax credit. Many argue that the new guidelines are stifling demand for EVs as companies can’t include costlier features in their vehicles without exceeding the price cap, creating a tradeoff. Analysts believe that customers will value the tax credit very highly, and this could create problems in the future especially with the new battery variable as cars could lose and gain eligibility in certain years. The incentive structure seems to be reasonable for now, but we’ll see if loopholes are found in the coming years.

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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.

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