The phased out tax credit offered buyers of electric and hybrid vehicles acquired after December 31, 2009 up to $7,500. The minimum credit was $2,500. Consumers were not eligible until after their automaker reached the 200,000-vehicle limit. Under the old system, those who bought Electric cars like the Volkswagen ID.4 will get $7,500 while customers who buy plug-in hybrids will get even less.
The new credit will continue to offer $7,500 for electric cars, but with important new caveats. Vehicles must now be assembled in the United States. There are also new requirements that battery metals are mined or processed domestically or in a country that has a free trade agreement with the United States.
Biden described the legislation as a way to achieve climate goals by cutting emissions and accelerating the adoption of clean energy. But 70% of electric, hybrid and fuel cell vehicles available for purchase in the United States are now ineligible for any credit, including partial, and none will qualify for full credit, according to the Alliance for Automotive Innovations, which represents automakers such as Ford, General Motors, Hyundai, Toyota and Volkswagen.
However, the new credit raises the current limit of 200,000 units on the number of vehicles that can qualify from each automaker. Tesla cars haven’t been eligible since the end of 2019, when the company hit 200,000 sales and hit General Motors Maximum April 2020. Makers of newer electric vehicles, such as the Rivian and Kia, still offer customers a $7,500 credit.
“It’s unfortunately spoiling it for a lot of people,” California resident Jeff Neubauer, who has been struggling to finalize an order to buy a Lucid electric car before the law took effect hoping for credit, told CNN Business of the new restrictions. “Anyone shopping for a car lives in a completely different world.”
“The lowest-risk, highest-reward gamble I have ever taken.”
Neubauer originally booked the Lucid Air in January to serve as a shared vehicle with his wife. He received an email from Lucid last week warning that when the Inflation Reduction Act was signed into law, Air was no longer eligible for the $7,500 tax credit. But the bill included a transition rule that would allow vehicles to qualify under the old rules, provided the buyer had “entered into a binding written contract to purchase” an electric car before Biden signed the legislation.
“We’ve decided to help reservation holders take advantage of the relocation rule by opening a window to place an order for Lucid Air,” Lucid wrote in an email seen by CNN Business. “We do this to help those who want to do everything possible to maintain their eligibility for the federal tax credit.”
He also warned that a buyer’s $300 or $1,000 deposit – depending on which cut line they chose – would become non-refundable.
Neubauer said he hasn’t even tested driving a Lucid Air. But he described signing the agreement and risking losing his deposit as “no brainer”. Neubauer said he owns several electric cars and is comfortable with them.
“If for some reason my wife doesn’t like it when he comes out, I get $300,” Neubauer said.
Oregonian Jase Daggett had a similar reaction after hearing from Rivian about the new tax credit.
“Signing the contract will make $100 of your current $1,000 deposit non-refundable and help maintain your eligibility to apply for the $7,500 tax credit,” Rivian wrote in an email sent on Wednesday. “Once the inflation-reduction law becomes law, customers will lose this opportunity and be subject to the new restrictions.”
Daggett has never tested driving a Rivian R1T, instead relying on word of mouth and YouTube reviews. He said he signed the contract within “about four minutes” of receiving the email.
“The lowest-risk, highest-reward gamble I’ve ever taken,” Daggett told CNN Business.
Other buyers were hesitant to sign up, especially before a test drive. Jeff Douglas said he received two emails from Lucid about ending his reservation so he could get the tax credit.
“I told them every time they asked me anything, ‘I want a test drive, or I don’t want to hear anything else,'” Douglas said.
Push for more local sources, with new unknowns
Manchin had concerns about the United States’ reliance on foreign countries for electric vehicle components. China dominates electric vehicle metal processing and battery manufacturing.
“I don’t think we should build transportation on the backs of foreign supply chains,” Manchin said recently. “I will not do that.”
The bill stipulates that in 2023, 40% of the critical minerals in an electric car battery must be mined or processed in the United States or in a country where the United States has a free trade agreement. 40% will gradually rise to 80% in 2027. Regulations must be in place to determine exactly how a vehicle meets the caps.
Devin Hathcock, a Utah resident who pre-ordered an electric Nissan Ariya in November 2021, said he was worried he would lose credit when he first heard about the inflation-reduction law.
“If they were really trying to motivate people to adopt electric vehicles, that was really the wrong way,” Hathcock told CNN Business.
When Nissan emailed him and offered to sign a binding contract in hopes of continuing to receive credit, he signed immediately.
“I felt like I had nothing to lose,” he said. “And win it all.”