Tax Trading
One of the main incentives for EV companies right now is the tax credits they receive from the government. With the switch to renewables on the mind of the current administration, they’ve provided EV businesses with what they need to take the next step when it comes to innovation, but they can do unique things with these tax credits that will open a new market in the economy.
In the Inflation Reduction Act, there was a clause stating that tax credits can be transferred between companies, and this makes for an interesting dynamic between companies, whether they are small or big. The Inflation Reduction Act brings increased taxes on large corporations but many believe that this tax trading method could create another loophole for those companies. Economists believe that large companies with no investment in renewables would buy tax credits to keep their profits high and taxes low, which defeats the purpose. This can also be common in the renewable space itself, where companies who don’t use up all their tax credits end up selling it to larger companies who could use it, and it boosts profit for both. It’s an idea with setbacks and drawbacks, but Senator Joe Manchin stressed that it needed to be included in the deal. Banks will also have to adjust in order to facilitate these deals, but there are many unknowns like pricing and how exactly the market moves considering liquidity doesn’t exist. Starting next year, the effect of this tax credit market will be shown in corporate earnings, giving us something to wait for.
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.
