One of the more headline-grabbing parts of the recently passed Inflation Reduction Act is that it has the potential to upend the car industry with a $369 billion subsidy for energy security and climate change protection from the federal government, part of which goes toward incentivizing the purchase of clean energy tech like EVs.
But, for those of us looking to buy a new, sweet plugged-in ride, it isn’t as easy as going out and buying any old model. If you want an electric for cheap — and we’re talking thousands in savings — you’re going to have to read the fine print. Here’s what you need to know.
1. Don’t Rush Into Buying An EV
Good news: You don’t have to rush into buying an EV to beat the incentive sales cap anymore. Congress wanted to incentivize several aspects of automotive production at once, and while they phased out the prior $7,500 tax incentive for EVs, which allowed automakers to qualify their cars for tax rebates to consumers, that law was already sunsetting because it capped the number of units any brand could sell at 200,000. Tesla and GM had already exhausted their allotment, and Toyota was just about to.
With the Inflation Reduction Act, there’s no cap — if Ford sells 200,000 Lightning pickups or Chevy sells that many Silverado EVs, their buyers can still qualify for incentives. So take your time shopping and don’t worry about buying before the rebate allotment runs out.
2. Look For Cars Under $55K
If you’re looking to save money on a rebate, look for EVs $55,000 and under, because the new legislation caps any tax incentives consumers might get for buying an EV based on the price of the vehicle. For electric sedans, hatchbacks, and wagons, that’s at $55,000, and the cutoff for SUVs, pickup trucks, and vans is $80,000.
This was because legislators decided that anyone who could afford that much or more for a car probably didn’t need federal help with the purchase. This is also why households that earn more than $300,000 can’t get the new incentives, heads of households that bank north of $225,000 per year don’t make the cut, and any individual filer who makes more than $150,000 cannot get the tax breaks, either.
Starting Jan. 1, 2023, if you can find a used EV selling for $25,000 or less, you can get back either $4,000 or 30% of the vehicle cost, whichever is lower. But on used EVs, income restrictions are tougher: $150,000 for joint filers; $112,500 for household head; $75,000 for single filers.
3. Haggle With The Salesperson, Not The IRS
Starting in 2024, buyers who qualify (on EVs that qualify) will be able to get the tax break lopped off the top. Basically, you’ll work with the dealer to give that break back to them, and then they’ll knock the incentive off the sticker price. Suddenly, needing to plan to actually owe the IRS money so that you could get a tax break is no longer necessary, since you’ll be getting the tax break taken off of the purchase price.
4. Buy Domestic
If you want to take advantage of the available rebates, you’re going to want a vehicle that’s assembled and sourced domestically.
To spur more manufacturing within the United States, the new law will reward carmakers (or punish them) based on where their parts are from, down to mining ingredients for batteries and of course making semiconductors within our borders.
By 2024, EV manufacturers will have to decide where to make their cars, and also, to try very hard to source ingredients for their EVs domestically, or their buyers will be screwed out of incentives. The IRS seems to be saying right now that cars made domestically, but not from domestically mined battery ingredients, will qualify for about half of the $7,500 tax rebate, and so the best guess is that the new normal will be EVs that are priced no higher than the sticker cutoff for rebates, and that we’ll see way more final assembly here.
An example of not meeting those requirements?
Look no further than the excellent Hyundai Ioniq 5 Fatherly recently reviewed. It, along with the BMW i4, Kia EV6, Subaru Solterra and Toyota bZ4X, Audi E-Tron SUV and Sportback, Polestar 2, Volvo XC40 Recharge, and many other EVs will not receive any incentives. So you can bet those manufacturers with the ability to make cars in this trade zone are going to scramble to do that as soon as possible.
5. Jump In Before January, If You Can
Are you eyeing an EV that won’t qualify for rebates starting in 2023? You’d better hustle, then. Before the end of the year, the IRS has clarified that brands that had not hit the 200,000-unit incentive cutoff and see final assembly within this trade zone would still qualify for the up-to-$7,500 tax credit. According to the Department of Energy, that list includes the following plug-in and full hybrids:
Audi Q5 Plug-in hybrid
BMW X5 xDrive45e
Chrysler Pacifica Hybrid
Ford Escape Plug-in Hybrid
Ford F-150 Lightning
Ford Mustang Mach-E
Jeep Grand Cherokee 4xe
Jeep Wrangler 4xe
Lincoln Aviator Grand Touring
Lincoln Corsair Grand Touring
Volvo S60 Recharge
6. Or Wait Until 2023 For Plenty Of New Models
Come 2023, what qualifies for any incentives will shift drastically. Tesla sedans that cost less than $55,000 will again receive incentives, and maybe (depending on DOE and IRS regulations), so will the Tesla Model Y and Model X. GM’s forthcoming Cadillac Lyriq may nudge under the bar, but we bet the Hummer SUV will just cost too dang much. On the more affordable end of the market, the Chevrolet Bolt and Bolt EUV should be back in play, too. But then come 2024 those restrictions on “ingredients” really start to bite, eating into how much incentive your car might qualify for.
In the long run, this will be good for American competition in semiconductors and greener manufacturing. In the near term? If you’re on a budget, Jan. 1, 2023, go try to find a used EV selling at $24,999.
There’s a silver lining for some states. California, Washington, New York, and New Jersey (and many others) offer several thousands of dollars in tax and other incentives, regardless of where that EV was made and whether the guts are sourced domestically. The Garden State, for instance, wipes out your entire tax obligation on the purchase of an EV, which can help tip the scales toward that greener buy.