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IRA EV Incentive Outlook For 2024

Post by Barry Kresch

Beware the Disappearing Incentives

There are 35 EVs (BEV and PHEV) listed as incentive-eligible by the Federal Department of Energy as of October 1, 2023. It is really fewer than that as the website breaks out the different trim levels. For example, there are 8 variations of the Volkswagen ID.4. The DoE website is here. It includes the ability to filter vehicles.

Tesla is publishing incentive alerts on its website, seen in the photo above, warning that some of its vehicles may lose full or partial incentive eligibility. Tesla is more public about it, but it is not alone in bumping up against the moving target of escalating in-sourcing requirements, the looming Foreign Entities of Concern rule, and ongoing IRS rule-making. From what we are hearing, most EV manufacturers could be affected, mostly because it is difficult to quit China as quickly as the legislation requires.

Battery Requirement Changes

These are the changes in the battery requirements that begin in January.

  • Critical Mineral Sourcing/Refining increases from 40% to 50%. This minimum percentage must come from either a domestic supplier or free trade partner.
  • Battery Assembly – the percentage of battery components that must be assembled in North America increases from 50% – 60%.

Foreign Entities of Concern

The rule that the manufacturers have voiced the most consternation about is the Foreign Entities of Concern (FEoC). This phases in beginning in 2024, followed by part two in 2025. The FEoC mirrors the battery regulations in that half of it applies to critical minerals and the other half to battery assembly. It is the latter half that starts in 2024 with the mineral portion following one year later.

Beginning in 2024, eligible vehicles cannot contain any battery components manufactured in a country so designated. The way to think about it is if you reference the 60% battery assembly requirement noted above, a manufacturer can source 40% of battery components from outside of North America in 2024. However, the FEoC rule specifies that none of that 40% can come from a FE0C. This is obviously about China, but other countries will fall into this designation.

We expect a number of vehicles to lose all or 50% incentive eligibility in 2024. Over time that will likely change, but the next two years are sure to be the most challenging as requirements tighten and new plants have not yet come online.

Ongoing IRS Rule-Making

A large rule-making task was quite literally dumped on the IRS in August of 2022. The wide-ranging IRA legislation, which encompasses much more than EVs, was passed in rather skeletal form, with the implementing agency, The Department of the Treasury, responsible for developing the specific rules. Sometimes this rule-making has run counter to the spirit of the legislation according to some of the legislators who voted for it. For example, the “leasing loophole,” which allows consumers to obtain incentives on vehicles that would otherwise not meet the requirements if purchased, came about because the IRS interpreted a lease as a commercial transaction. The vehicle is sold by the dealer or manufacturer to a captive finance company. This was defined as commercial. The fact that the finance company subsequently executes a lease with a consumer is beside the point from the perspective of the incentive. Commercial transactions fall under a different set of rules that do not include the restrictions that apply to consumer purchases.

Due to the short lead time, the ink has barely been dry on the rules at the time they are due to be implemented. Sometimes the IRS blows through the deadline. The first-year set of battery rules was postponed from January 1 to April 18th of this year for that reason.

The FEoC remains a moving target in this regard. The IRS has advised that the final list will be available before the end of the year, so potentially as little as 24 hours before it is due to go into effect. Maybe there will be an FEoC postponement, similar to what happened with the batteries.

How to Define FEoC

One of the big areas of contention involves not so much designating what countries fall under this rule, but how it is defined. For example, what if a Chinese company opens a plant in North America? What if it is a joint venture with a domestic manufacturer? What if a domestic company builds a factory but licenses technology from a Chinese company? The latter is the most minimalistic footprint and an example is the battery plant that Ford has begun building in Marshall, Michigan. The plant will be producing Lithium Iron Phosphate (LFP) batteries. Ford will own the factory. The workers will be Ford employees. The LFP battery chemistry IP is being licensed from CATL, the big Chinese battery company.

Last week, Ford announced it is pausing construction on this plant. Of course, the company is in the midst of contentious negotiations with the UAW, which is trying to include battery plants owned by the companies in which it has representation at parity wages. But Ford has also commented publicly that it is waiting for IRS determination regarding whether the IRA manufacturing and consumer tax credits are applicable to this plant. It has threatened to greatly downsize the plant if that is not the case.

VIN

While we hope that dealerships are able to offer consumers accurate information regarding whether an EV is incentive eligible, and in our experience Tesla has been pretty on top of incentives, the definitive way to know is to input a Vehicle Identification Number on this federal page. Of course, it would be better to know about eligibility further upstream, but that is what the government has provided.

Lobbying

There are lots of reports of furious lobbying behind the scenes, which occasionally spills into public view, such as the Ford battery plant. But there is more than that. Manufacturers would like to change the determination of vehicle eligibility from the “placed in service date” to the date of manufacture. They obviously have more control over the latter, and it buys them a bit of a grace period since it is earlier.

It has also been reported that manufacturers would like to get Vietnam designated as a free-trade partner for the purposes of battery critical minerals.

The Transfer Provision – Another Big Deal

Tax credits are not the most consumer-friendly form of incentive. You have to wait for it. And not everyone has enough tax liability to be able to use it. The transfer provision is the legislation’s way of turning the tax credit into a rebate. The buyer transfers the credit to the seller. The seller takes the credit and gets reimbursed by Treasury. Also, non-taxable entities can use the transfer provision.

My biggest concern is that the process won’t work smoothly when it is initially introduced. The IRS has been working on the process. It is yet another aspect of rule-making that will likely come down to the wire. Will the dealers and manufacturers be on top of it and not afraid to use it?




Love Your Gas Car But Hate Emissions? Time for an EV Conversion

By Analiese Mione

But I love my car. I have heard that refrain so many times when speaking to everyday people about driving electric. Now you can keep the car you love and nix the emissions and costly maintenance with an ICE to EV conversion.

ICE to EV Conversions

Inductive Autoworks Founders
Appearing right to left are Jonathan Untied, co-founder, President and Chief Software Engineer; co-founder, Lead Electrical Engineer Dennis Manning, and co-founder, Lead Mechanical Engineer Joe Monasky.

This is neither a simple nor inexpensive operation, at least not yet. A visit to Inductive Autoworks in Tolland, CT to attend a VIP tour of their new EV conversion facility provided a wide eyed, in depth look at what’s involved. Dive into the video below for a quick overview and read more below about how Inductive Autoworks is bringing EV technology into the mainstream.

Appearing right to left in the video below are Jonathan Untied, co-founder, President and Chief Software Engineer; co-founder, Lead Electrical Engineer Dennis Manning, and co-founder, Lead Mechanical Engineer Joe Monasky.

Strip Out the Engine

Step 1 is to remove the gas engine, gas tank and clutch, if it has one. Inductive Autoworks’ triumvirate of founding engineers said this is the easy part and their shop does it fairly quickly.

Put in a Motor, Battery and other EV Conversion Components

Electric motor and controller/inverter
Electric motor and controller/inverter on cart

Inductive Autoworks Exploded Electric Vehicle
Inductive Autoworks Exploded Electric Vehicle display

Niro EV Battery Pack at Inductive Autoworks
Niro EV Battery Pack at Inductive Autoworks

Step 2, better yet phase 2, is to add all the EV components and connect them. EV conversions are custom engineered, take time and cost more than you’d think. Think of all the parts of an EV that don’t exist in an ICE vehicle. All these need to be added including an electric motor, battery to charge the motor, on board charger, charging port, and battery management system. Learn more about batteries and other EV conversion components, and how to get them talking to one another, in the photos above and videos below.

Want to take a deeper dive into all the critical EV parts and how the Inductive Autoworks team collaborates to design, create and install them so you can drive your favorite car as an EV? Watch the beginning of the video below from fellow EV Club of CT member Paul Braren who attended their pm open house. Watch the whole video to visit each display station including the CNC and converted EV.

But for the classic car lover in particular, conversions are THE solution to keeping the car running in an environmentally friendly way. For the ROI types among us, factor into your spreadsheet the cost savings from not maintaining a combustion engine (who loves ordering rare and expensive parts from Germany?), switching to electric vs gas (50%+savings), and the priceless improvement in performance. We do want to see your analysis! For now, there is no word on whether CHEAPR incentives will apply to conversions.

Building an EV Conversion Brain Trust

Wondering about car insurance for a conversion? We are too, so more on that coming soon, but rest assured Inductive has registered and insured converted vehicles like the Mazda RX-8 below. Each time Inductive does a custom conversion for a particular ICE make and model, like the Mazda RX-8, the design and fabrication specs gets stored in a module they can reuse to convert another vehicle at a much lower cost.

Mazda RX-8 EV Conversion by Inductive Autoworks
Mazda RX-8 Custom EV Conversion by Inductive Autoworks

Custom Machined Parts

Custom parts are designed on a computer and fabricated in house on the CNC (Computer Numerical Control) machine, thereby ensuring accuracy and consistency while ruling out human inefficiency and error. The next time they have to machine the same part, they call up the design and reuse it at marginal expense to the customer.

Inductive Autoworks CNC machine
The CNC machine at Inductive Autoworks used to design and machine parts for custom EV conversions.

Custom adapter prototype
Inductive Autoworks created a custom adapter (protype shown) to allow them to mount an electric motor to an OEM transfer case.

Watch the video below to learn about their protyping, testing at the test bench, get a closeup of the Mazda RX-8 conversion and test Leaf used to evaluate how they can swap out spent batteries for new ones. The tricky part is getting the car to accept the new part, and that’s a software problem. Good thing they have a software engineer on the team.

Driving the Evolution to EVs

The team is also working towards offering kit conversions for DIYers, but this is an evolution. If you’re looking to get a new battery for your spent 2012 Nissan Leaf for example, reach out because battery replacements are part of the evolving EV ecosystem they’re building. And yes, old batteries will be used for stationary storage.

Interested in an EV conversion or other EV services? Reach out to Inductive Autoworks at inquiry@inductiveauto.com or +1 860-222-0915 and let them know the EV Club of CT sent you.




Reducing Our Carbon Footprint

Written by Sarah Donavan

Reducing Carbon Emissions

I am a global warming alarmist, and as such, it would be specious of me not to take action to reduce my carbon footprint.  So . . . I hang my laundry outside (as long as it will get above freezing). I set my thermostat to 65°. My major appliances are set to run on electric off-peak hours, including my whole house fan, which is my only form of air conditioning. Believe it or not, there are immediate benefits to these actions.  My husband’s gym clothes smell wonderful, I keep moving in the winter and I structure my days around a late day swim in the summer.  Additionally, the monetary result of using mostly off-peak power is that we pay less to the utility company! The only carbon reduction resolution that has cramped my style: my rule of thumb not to drive anywhere unless I can accomplish three things.

As my most recent car reaches the end of its viable life (10 years and counting), I am excited to acquire an all-electric car. Since I have always driven Audi, I reserved my all-electric vehicle the night of the Audi e-tron launch party.  While waiting for my new e-tron to arrive, I gave thought to how I was going to charge this car.  What made me decide to install a “solar system” was an article I read in Popular Mechanics that said the fastest payback for solar roof panels was to use the power to charge an electric vehicle.  This is logical to me, as gas is a more expensive source of energy than electricity or heating oil.  The added benefit: charging my car on electrons from the sun will be carbon neutral.

Moving Beyond an EV

We had other objectives as well.  After experiencing 6 powerless days in the wake of Sandy, we wanted an emergency backup system, and we knew that we might not always be home during the day to take advantage of the sun.  We approached Solar City and sized a Power Wall and solar panel system to meet our bare bones needs, both for the house and “generator” (the power walls). The only bummer: we must power the Level Two charger that we installed from the grid, as the power draw will overwhelm the solar and battery system.  But most of our day-to-day electric car charging needs can be addressed with Level One charging, which we can get from the solar cells.

While looking into all these options, we were lucky enough to come across the Electric Vehicle Club, where we are able to compare notes and get up to date information from other club members who are also convinced that electric cars are the way of the future. Many members have their own path toward sustainability, and it is great to hear the new ideas! Many members have had their electric cars for years and it is great to hear that they are still enthusiastic.

We have almost completed installation, and my e-tron is on its way! The Tesla installers were clean, courteous, and professional. I look forward to updating the saga with facts and figures once we get an idea of how the system runs.