Electric vehicle tax credits: Here's what you need to know
Car shoppers no longer have to guess which hybrid or electric vehicles qualify for a federal tax credit this year, with the U.S. issuing new guidelines this week. Here's what to know if you're considering buying an electric car.
Which cars qualify?
It's a short list. Only about a dozen vehicles qualify for the full $7,500 tax break — all from U.S. car makers.
Four hybrid vehicles and three EVs — the Ford Escape, Jeep Grand Cherokee, Jeep Wrangler, Lincoln Corsair Grand Touring, Ford E-Transit, Mustang Mach-E and Tesla Model 3 Standard Range — are eligible for a $3,750 credit. Customers who buy a used EV are eligible for a $4,000 credit.
The following electric vehicles qualify for the full $7,500 tax credit:
- Cadillac Lyriq
- Chevrolet Blazer
- Chevrolet Bolt & Bolt EUV
- Chevrolet Equinox
- Chevrolet Silverado
- Ford F-150 Lightning (both standard and extended range battery)
- Tesla Model 3
- Tesla Model Y (both all-wheel and long range drives)
Customers who purchase those cars can apply the tax credit to their 2023 tax return. Starting next year, drivers can transfer the credit to a dealership, lowering the vehicle's purchase price.
Which EVs don't qualify, and why?
To qualify for the tax credit, federal guidelines now stipulate that the purchased EV must have 50% of the value of its battery components produced in North America, and 40% of the value of minerals used to make the vehicle itself must be extracted domestically.
Failing to meet those criteria eliminated more than a dozen vehicles from eligibility for the tax break. These EVs and hybrids no longer qualify:
- BMW 330e
- Nissan Leaf models — including the S, S Plus, SL Plus, SV and SV Plus
- Volvo S60 models — including the Extended Range and T8 Recharge
- Audi Q5 TFSI e Quattro
- BMW X5
- Ford Escape Plug-In
- Lincoln Aviator Grand Touring
- Rivian R1S
- Rivian R1T
- Volkswagen ID.4 models — including the Pro, Pro S, S, AWD Pro and AWD Pro S
What other factors affect the EV tax credit?
Your income and the price you paid for an electric vehicle also play a part in whether you land the tax credit. Drivers are eligible as long as the EV's sticker price is less than $55,000 for sedans and no more than $80,000 for SUVs and vans. Also, people with a gross income over $150,000 are disqualified; for married couples, the cutoff is a combined income of $300,000.
How will the new rules impact the EV market?
Dealerships will almost immediately start marketing the tax credit benefits on the eligible models they have on the lot, Ivan Drury, director of insights at Edmunds, told CBS MoneyWatch. This will likely help boost sales for the Ford F-150 Lightning pickup and Tesla Model 3 sedan, he said.
Although foreign automakers will likely try to move some of their EV manufacturing to the U.S. so their cars qualify for the tax credit, Drury expects that process to take years. For now, the new guidance makes it easier for car buyers.
"The most homework consumers will have to do now is visiting the EPA site or fueleconomy.gov or a dealership's website," he said. "The last few months have been this strange gray area where Tesla started hacking away at its prices, and so did Ford. This clears up a lot of confusion, and now people can actually plan."
Will this lower EV prices?
Yes, but not immediately. Over the longer term, government tax subsidies and the declining cost of building EVs should make it easier for automakers to offer prices that are more competitive with traditional fuel-injected cars.
In March, the average new EV sold for $58,940, according to Kelley Blue Book. But Tesla, GM and other automakers have committed to offer electric cars that cost less than $30,000 in the not-too-distant future.
Prices are eventually likely to drop because "margins are starting to improve for these electric vehicles," Tom Narayan, the lead equity analyst for Global Autos at RBC Capital Markets, told CBS News.
"Remember, when they [EVs] started coming out, these automakers were losing money on them," he noted.
"We've scaled to a point where we can start thinking about the next step in the evolution of EVs," Narayan said.