Photo above: Ford expects its Mustang Mach-E to qualify for half the incentive; Chevy expects the same for its Bolt.

Battery Rules Issued

January 1 came and went. The new federal incentives in the Inflation Reduction Act became law but the implementing agency, the IRS, had not completed rule-making for several portions of it, most particularly how manufacturers can be in compliance with the new rules for sourcing and refining of critical minerals and battery assembly. The IRS said it needed until March. True to its word, the rules were issued on March 31 and take effect April 18th. This interim period allows manufacturers to determine which vehicles will be eligible and whether the certification will be for the full $7500 credit or only half.

Consumers have gotten a benefit from this delay as more vehicles were temporarily eligible. Many vehicles are expected to lose incentives due the rules. If you have cash burning a hole in your pocket and are in the market, you can still move fast and pick up an EV with the full incentive applied (assuming the other criteria are met). But you have to take possession of it before April 18th. The incentives are applied, in IRS speak, at the “date placed in service.”

What Rules Apply

The rule-making itself is highly technical in nature. The law requires that 40% of the sourcing and refining of critical battery minerals occur either domestically or with a free-trade partner and that 50% of battery assembly takes place in North America during 2023. Going forward, these levels escalate. So, how do you define 40%/50%? The IRS has determined that it is to be based on value. So how does one define value? What is the legal definition of a free-trade partner? (The ink is still wet on some frantic dealmaking that happened so that some friendly nations, e.g. Japan and South Korea, could officially become free trade partners.)

We’ll know on April 17th what vehicles are eligible for how much of the incentive, but it will be a continually evolving list as manufacturers wrangle supply chain logistics and as the requirements escalate. It is possible that a vehicle eligible in one year loses eligibility in a subsequent year if the supply chain has not maintained pace with the requirements. And it has to be done in an environment of (presumably) a rapid ramping up of production volume. This article from Reuters includes statements by some manufacturers regarding which vehicles stand to lose incentives. This is the Department of Energy page that lists qualifying vehicles. It will be updated on April 17th.

Making Sure the Vehicle is Incentive-Eligible

It certainly helps if a manufacturer certifies that a given vehicle is incentive-eligible. But the IRS is officially determining eligibility based on the VIN. This is a new world we’re about to enter, and with all that is being written in the press about how these incentives work, there hasn’t been much discussion of this potential for a consumer to be left in the lurch.

It is possible that two of the same make/model/model year vehicles have different incentive statuses, based on when and where the manufacturing and delivery take place. When filing for the tax credit, the VIN is required and Treasury matches it to its records. It is advisable to check the VIN before buying the vehicle. That can be a hassle, as for a made to order vehicle, the VIN isn’t available until late in the game.

The EV Club, in partnership with the Electric Vehicle Association, recommended that the IRS use make/model/model year and deal with it at the manufacturer level. Our take is that asking consumers to be in the VIN checking business is a clunky way to go. It could cause an unpleasant surprise. It definitely fosters confusion.

For readers of this blog, if you buy an EV after the new rules are in effect, we are interested in hearing about the process and if you felt protected if you were promised an incentive.

Leasing

For those who lease, none of the rules apply, not even North American final assembly. The full incentive applies. Just remember, the finance company gets the incentive. It is up to the consumer to verify it is being passed along, which is not legally required. It is called a subvented lease.

Other Rule-making

Yes, there’s more, particularly the foreign entities of concern rule and the transfer.

Foreign Entities of Concern

The foreign entities of concern rule, which will phase in during 2024 and 2025, will likely include several countries, but is really all about China, which currently dominates the battery mineral supply-chain and has a lot of battery IP. What about Chinese investments in this country? Ford recently announced a joint venture with the big Chinese battery company, CATL, to build a plant in Michigan to manufacture LFP (Lithium Iron Phosphate) batteries. Does this comport with the law? In this case, Ford is banking on the fact that it is only the IP that comes from CATL and that the plant is owned by Ford. This is an article in Politico that discusses it in some detail but stops short of making a definitive statement. Stay tuned.

Transfer Provision

The transfer provision kicks in as of Jan 1, 2024. This year, the incentive is a tax credit. There are two drawbacks to tax credits. The first is that you have to wait until you file your taxes to get the incentive. The other is that you need to have the tax liability to burn it off. The transfer provision allows the consumer to transfer the incentive to the dealer or manufacturer and take the credit as a “cash on the hood” rebate. Unlike with a lease, the law requires the dealer to transfer the full amount of the credit to the consumer. That solves the timing problem. But what about if the consumer doesn’t have $7500 of tax liability? Could there be a claw-back? That seems unlikely. The intent of the transfer provision is, in part, to be an equity measure, so people without tax liability could take advantage of the incentive.

Inflation Reduction Act Incentives Officially Begin – But Which Cars Qualify?

It is anticipated that consumer confusion will ensue with the advent of the new incentives. Not only have they become a lot more complicated, but many manufacturers have yet to finish the registration process that certifies vehicles. Also, the IRS, which was handed the Herculean task of crafting all of the implementation rule-making in the span of about 4 months, unsurprisingly, is not yet finished. The Department of the Treasury has announced a 3 month delay. This most particularly affects the rules concerning batteries. The incentive provisions are, therefore, being phased in.

No More Manufacturer Cap

The manufacturer unit sales cap is now gone. That means that Tesla and General Motors are no longer excluded on that basis. Toyota, Ford, Nissan, and Hyundai/Kia had also either surpassed or were close to reaching the 200,000 unit threshold, which will now not apply to them either. (Toyota and Hyundai/Kia are presently disqualified due to final assembly not occurring in North America.)

Delay in Battery Rules Means 3 Months Without Them

The biggest challenge for the automakers will be to source the required percentage of critical minerals, either domestically or from countries with whom we have a free trade agreement. A somewhat lesser challenge will be to have battery assembly located in North America. But for this 3-month window before the rules are complete, they simply don’t apply. This is, in effect, Treasury’s “Buy Now” sale! Incentives for most BEVs will almost certainly decline when the new provisions get implemented as this degree of supply-chain reorganization will take some time, but for now, enjoy the full $7500 incentive. Note: The buyer must be in possession of the vehicle prior to the implementation of the new battery rules to take advantage of the full incentive if the new rules would cause the vehicle to lose all or some of it.

Absent the new battery rules, PHEVs are subject to the battery pack size rules that existed before the IRA. When the new rules kick in, PHEVs will be eligible for the same incentives as BEVs.

Which Cars Are Eligible?

Good question, and not exactly straightforward. This is the page on the IRS website that lists the manufacturers and specific vehicles. A number of manufacturers, namely Kia, Mazda, Mercedes, and Subaru are listed as having entered into an agreement to become a “qualified manufacturer,” but have not submitted specific vehicles. Other manufacturers are missing from the page altogether. Specific vehicle models are listed for Audi, Ford, GM, Nissan, Rivian, Stellantis, Tesla, Volkswagen, and Volvo. For the vehicle models that are listed, eligibility is not guaranteed (see MSRP cap below). The IRS advises this page will be updated on an ongoing basis.

MSRP Cap

Treasury is defining MSRP as the manufacturer’s suggested retail price, including options, accessories, and trim (but not destination charges). This may be different than what you pay for the vehicle. For example, if a dealer either discounts or surcharges the price, it is still the price as suggested by the manufacturer that rules.

How a vehicle is classified with respect to body type determines which MSRP cap applies. Vans, SUVs, and pickups have an $80,000 cap. All other vehicles have a $55,000 cap. And it looks like the IRS is being persnickety about this classification insofar as crossovers, which in the marketplace are direct competitors to SUVs, are not classified as SUVs and are subject to the lower cap. Some examples are the Ford Mustang Mach-E, the 5-seat version of the Tesla Model Y (the 7-seat version is classified as an SUV), all of the non-AWD versions of the VW ID.4. It doesn’t make a lot of sense to me either. Unfortunately, we foresaw this problem and included it as part of our comments to the IRS. It is a sneaky thing that ends up overweighting the incentives toward PHEVs.

Just because a vehicle is listed on the IRS web page does not mean that there is a trim level that falls under the cap. The cheapest Tesla Model Y, for example, is $65,990 (long range, non-performance, 5-seat configuration), obviously more than the $55,000 cap.

Other rules

Personal income rules are in effect – $300K for joint filers, $225K for head of house, $150K for a single filer. You can use current (purchase) year or prior year income to make this determination.

The incentive is in the form of a tax credit for when you file your 2023 taxes. The transfer option doesn’t take effect until 2024. Yes, you can use a tax credit if you use the standard deduction. The credit is good insofar as you have the tax liability to burn it off. To the extent the credit isn’t used, it goes away – no carry forward. Leasing the vehicle is a way to utilize the credit if you don’t have the tax liability.

The used EV incentive is now in effect.

North American final assembly rules have been in effect since the legislation was signed by President Biden on August 16th. The Department of Energy has a VIN decoder on this page, which you can use to make sure. Unfortunately, a VIN is not available until late in the sales cycle if you custom order, though it is available for a car on the lot.

The seller is required to send to the IRS the vehicle VIN and the purchaser’s tax ID. The purchaser is required to include the VIN when filing for the credit.

For a more complete description of how the new incentives work, please see our incentives page.

Note: All incentive advice is to the best of our knowledge and cannot be guaranteed. Also, IRS rule-making may subsequently change things.

Post by Barry Kresch

Summary of Comments Submitted to the IRS for IRA EV Incentive

The EV Club has partnered with the Electric Vehicle Association to author comments for the in-process IRS rule-making regarding the implementation of the EV incentive in the Inflation Reduction Act.

There is a scrum of lobbyists from manufacturers and interests groups weighing in with their cadres of lawyers and tax accountants. The focus of the EV Club and the EVA is the consumer and that informs our perspective and where we choose to focus our efforts.

Comments inform the details of enactment that are within the purview of the IRS, not the legislation itself, which cannot be changed without further legislation. The outlook for the legislation to be amended in the near-term is cloudy at best.

The usual disclaimer – This is based on the latest information available and is not a legal opinion.

Sourcing/Manufacturing Requirements

The IRA is a landmark piece of legislation with a lot to recommend in it, but the EV incentive leaves much to be desired.

The focus of the IRA writ large is to “inshore,” or re-orient manufacturing to North America. It already seems to be having a material effect. This is a chart from Bloomberg showing significant announced investment levels that seemingly flow directly from the legislation.

The concern is timing. As of the date of this writing, we are not aware of any EV that would qualify for the full incentive when the requirements begin to phase in as of January, and we are aware of many that won’t qualify for any incentive. We are advised that the IRS does have within its power to grant a temporary waiver, and facing a potentially significant disruption in the ability of the consumer to access EV purchase incentives, we support a modest delay in the requirements so that supply chains have a little more time to adjust.

Certification – A Real Buzzard’s Nest

Our view is that the least well thought out part of the legislation is how the eligibility of a given vehicle is communicated to the consumer. There are requirements for final assembly, battery mineral sourcing, and battery manufacture. (Price, too, but we’ll get to that later.) The latter two change every year, so a car that is compliant in 2024 might lose compliance in 2025. The fact that the requirements change on a calendar year basis puts it out of sync with the model year focus of building cars, not to mention EPA certification and other regulatory things that happen with a new vehicle.

Websites that have a list of vehicles, such as Plugstar or the AFDC.energy.gov website, are no longer able to provide definitive information regarding incentive eligibility. The best they can do is list cars that may be eligible, leaving it for the consumer to do their own research. The AFDC website directs consumers to contact the manufacturer or check on the IRS website. When I look up “fun” in the dictionary, the definition doesn’t include reading the IRS website. I wouldn’t be surprised if the confusion filters down to dealerships. It would be possible for a Volkswagen dealership, for example, to have a German made ID.4 parked next to the identical vehicle manufactured in Tennessee. The former is immediately disqualified due to the final assembly rule, while the latter might be eligible if the battery requirements are met.

The AFDC site also links to a VIN decoder. The VIN has the information needed to know if a vehicle qualifies. The problem is that a VIN isn’t available in anywhere near a timely way relative to the consumer shopping journey. By the time the VIN is known, a binding contract is almost certainly in place and the vehicle is almost at the point of delivery.

Proposed Solution

• Have the certification be on a model year basis and have it be available at the time the model year is initially offered for sale (which may precede deliveries).
• The manufacturer takes responsibility for the certification. If due to a certification running change, the model (or some units of the model) is subsequently found to not meet the requirements, any incentive claw-back would become the responsibility of the manufacturer.
• This timing would enable the certification to potentially be included on the Monroney sticker (the label affixed to the window of a new vehicle that displays the EPA mileage rating and other officially required information).
• Online tools like those referenced above would be able to definitively report the incentive status for a particular vehicle.
• This model year basis is consistent with how many state programs are run.

The first year of this will be extra complicated as the rules themselves will not be clear until the rule making is complete. Manufacturers shooting for IRA compliance have a moving target.

Our guiding principle is that an incentive must be simple, dependable, and easy to access. The intent of this proposed solution is make the inherent complexity of the legislation invisible to the consumer.

MSRP Cap

The bill specifies that a vehicle must have a maximum MSRP of $55,000 for a sedan or $80,000 for an SUV or light truck. It does not define how the MSRP is determined. Early reports about the legislation indicated that the MSRP would be defined as the final price of the vehicle, including options (but not taxes, title, or destination charges). There are MSRP caps in state incentive programs but they typically don’t work this way.

Most vehicles have multiple trim levels and then offer options within each trim level. The Connecticut program, CHEAPR, uses the base trim level MSRP. If a trim level is below the maximum allowed MSRP, ordering additional options does not affect eligibility, even if the final price exceeds the cap. The California law is more generous. If the base price of the lowest priced trim level is below the cap, then all trim levels qualify. The EV Club and EVA are advocating for the CA definition. This would obviously allow more EVs to qualify. We can deal with that!

Transfers

Eager to get a purchase incentive but not happy about waiting many months until you file your taxes to realize it? The transfer option is designed as the answer. Becoming effective in 2024, the consumer has the option to transfer the incentive to the dealer (new or used) and receive the tax credit as a “cash on the hood” rebate. As we have been diving into the bill details, an important point about the tax treatment of the rebate is not clear. If someone elects the transfer, they receive the full amount. However, if they do not have the tax liability to absorb it, they are on the hook for paying the difference between their liability and the $7500 (for a new vehicle) come tax time. At least that is how several folks who know more about tax accounting than I have interpreted it.

Doing this kind of claw-back makes no sense on any level. The consumer is exposed to an unquantified risk. The dealer is receiving the credit, and  either using it or getting reimbursed by Treasury, so it would be a weird form of double taxation. Finally, it is self-defeating. The intended design of the incentive is to increase EV adoption among non-affluent consumers. This would act as a red flag for exactly the target consumer. The EV Club and EVA are advocating that anyone taking the transfer get the full incentive, full stop.

Transfers vs Leasing

A transfer works differently than a lease. If a customer leases, the incentive goes to the finance company or whomever holds the title. That entity can package the incentive into lower lease payments. It has always been a way for someone who does not have $7500 of offsetting tax liability to be able to take full advantage of the incentive. However, the title holder is not legally obligated to do this. They can just keep all or part the incentive for themselves. It is why we have always advised consumers to discuss this specifically with the seller.

One of the good things about the transfer is that the rules require full disclosure on the part of the seller and that the seller pass the entire incentive through to the customer. The EV Club/EVA recommend that these requirements be expanded to include leasing customers.

Transfers and Income Eligibility

There are income caps in this program as we explain on our incentives page. If someone takes the tax credit the old-fashioned way, meaning when they file their taxes, income eligibility can be determined by either the current year or prior year modified adjusted gross income. In the case of a transfer, where the dealer is tasked with verifying eligibility, as an operational matter, the only option is to look at the prior year. It is the recommendation of the EV Club/EVA that the consumer, if determined to be ineligible for the prior year, be given the option of using the current year. In that scenario, the incentive would be given at the time of purchase. The consumer would take responsibility for current year eligibility (to be verified upon tax filing). If the consumer remains ineligible, it is their responsibility to repay the incentive. There are situations where someone has a pretty good idea whether they will have a change in taxable income and this expands their opportunity to receive an incentive.

The IRA EV consumer purchase incentives suffer from being too complicated for consumers to easily negotiate. Our comments seek to address this. The IRS is working to have its rule-making done by the end of the year.

Post by Barry Kresch

Tax Credit for Purchase and Installation of an EV Charger

The recently passed Inflation Reduction Act has amended US Code 26, Section 30C to reinstate a tax credit for the purchase and installation of an EV charger.

This credit had been in the tax code a while. Every year it expired and every year it got extended for one year, sometimes, as is the case now, after the fact. It had expired on December 31, 2021. It is now folded into the 10-year time horizon of the IRA. Here are the key things to know:

• The credit is for 30% of the combined cost of the hardware and installation, capped at $1000. This is the same as what it used to be.
• This has nothing to do with the utility incentives. Any charger qualifies.
• It is retroactive to January 1, 2022. If you bought a unit earlier this year, include it in your tax return.
• This incentive becomes more restrictive beginning in 2023, going through 2032. It then applies only to low income communities and rural census tracts.
• Use IRS form 8911 to claim the credit.

There is a commercial version of this with higher amounts.

Standard caveat: Always check with your CPA.

Photo: Hyundai Ioniq 5 is an example of a vehicle that immediately loses eligibility due to its not being manufactured in North America

Post by Barry Kresch

Which EVs Are Eligible for the Federal Tax Credit for the Remainder of 2022

The Inflation Reduction Act, for the most part, goes into effect in January 2023. That leaves this interregnum from August 16th through the end of this year, when the existing program stays in place except for the fact that as of the moment the ink dries, EVs not assembled in North America lose eligibility. According to EVAdoption, only 21 models qualify for the remainder of this year:

All of these are manufactured in either the United States, Canada, or Mexico.

The manufacturer cap remains in place until the end of the year, which eliminates Tesla and General Motors. All of the above manufacturers have not phased out. Toyota reportedly exceeded the 200,000 unit cap during the second quarter. That would translate to the tax credit being halved in Q4. After that, they wouldn’t have to worry about it. For any company that exceeds the cap in the third (or fourth) quarter, Ford being the most likely example, it becomes a non-issue as the cap would be gone before they phase out.

The Volkswagen ID.4 has been imported from Germany, but the company will soon manufacture them in its Tennessee plant. Be sure and check.

Customers of Rivian and Lucid, new manufacturers of high-end EVs, will be able to utilize the credit until the end of the year. As of next year, these cars, except for lesser equipped versions of the R1T and R1S, will exceed the new price thresholds. The Karma and the Mercedes also exceed the new price thresholds.

What if You Bought a Car Earlier This Year That Is No Longer Eligible

If you bought a car earlier this year that was eligible when you bought it but has lost eligibility either as of August 16th or will lose eligibility as of next year, you can still take the tax credit when you file your 2022 taxes.

If you have a binding contract from before August 16th on a vehicle such as the above-noted Ioniq 5 that has lost eligibility, but you have not taken delivery, you should still get the credit based on the federal language. Usually, it means a binding contract that neither party can change, a non-refundable deposit, and a VIN.

“Binding” is the key word. This is the IRS language:

“If you entered into a written binding contract to purchase a new qualifying electric vehicle before August 16, 2022, but do not take possession of the vehicle until on or after August 16, 2022 (for example, because the vehicle has not been delivered), you may claim the EV credit based on the rules that were in effect before August 16, 2022. The final assembly requirement does not apply before August 16, 2022.”

A binding contract is generally interpreted as enforceable under state law, including a non-refundable deposit of at least 5% of the total value. This is an excerpt of the language on the IRS website (which is federal):

“For example, if a customer has made a non-refundable deposit or down payment of 5 percent of the total contract price, it is an indication of a binding contract. A contract is binding even if subject to a condition, as long as the condition is not within the control of either party. A contract will continue to be binding if the parties make insubstantial changes in its terms and conditions.”

As we are always careful to say, we try to provide accurate information, but with respect to tax credit eligibility, please check with a CPA.

Although I applaud the goals of the IRA, I think this abrupt loss of eligibility is confusing for consumers and not helpful in general.

We do not yet know which models will meet the minerals sourcing and battery manufacturing requirements that take effect next year. I expect to see reports in the EV press as models become declared eligible.

Post by Barry Kresch

EV Transferable Tax Credit Included in Inflation Reduction Act (IRA)

President Biden signed the Inflation Reduction Act into law on August 16th. With it comes a new EV purchase incentive.

It was past time to revise the existing federal EV incentive. The IRA brings with it some improvements, along with more complexity and some uncertainty. I have read a lot of the reporting around this legislation and find much of it not completely clear and sometimes inconsistent. There is also still additional rule-making that has to happen. This is what it looks like to me with the caveat that your mileage may vary and the content may be updated based on new information.

Summary of the new incentive:

• Tax credit of up to $7500 for new EVs.
• Option to take the credit as a normal tax credit or assign it to the dealer to receive it as an immediate rebate (not to mention utilize it if you do not have enough tax liability). Begins 2024.
• Although the bill has a lot of language about dealers, Tesla and other direct sellers are eligible to the extent their vehicles meet the other requirements.
• Used EV incentive of up to the lesser of $4000 or 30% of the vehicle cost.
• In order to receive the used EV incentive, the vehicle must be purchased from a dealer. Used-car only dealers qualify. Private sales do not.
• Means testing (income limits for recipients of new and used incentives).
• Price cap for new and used EVs.
• 10-year time horizon – Incentives in place through 2032.
• Minimum battery pack size requirement of 7 kWh (increased from the current 5 kWh, but still really small).
• New incentives are effective as of 2023.
• Requirements for minerals sourcing and battery manufacturing phase in beginning in 2023.
• Final assembly takes place in North America.

Limitations of the Current Incentive

The existing federal EV tax credit was limited from the beginning and has become increasingly less useful as time goes on. Perhaps because EVs were relatively exotic when it first began, each manufacturer was allotted a quota of 200,000 unit sales before they would begin to phase out of the incentive. It never made a lot of sense. Not only did it end up penalizing those companies that were first out of the gate, the number is puny considering the country has a light-duty fleet of approximately 200 million vehicles (Bureau of Transportation Statistics).

When a manufacturer crosses the 200,000 unit threshold, a phase-out period begins that lasts 15-18 months, depending on the timing of when they crossed. Tesla and General Motors exceeded the threshold in 2018. Tesla was fully phased out by the end of 2019 and GM followed in March, 2020. Toyota, Ford, Nissan, and Hyundai have either just recently hit that mark or are close.

The second limitation to the current program is inherent in its structure as a tax credit. You have to wait until you file your taxes to get it and it only helps if you have enough tax liability to offset. There is no carry-forward provision. All that said, it does have the virtue of relative simplicity. The only rule is that the size of the credit is based on the size of the battery pack. All BEVs and the longer-range PHEVs qualify for the full credit, which begins at 18 kWh.

The New IRA Upends Much of This Thinking

The new program makes a good start by removing the 200,000 cap. In its place are new rules intended to introduce progressivity, and new requirements to jump-start a domestic supply chain and spur domestic manufacturing. The result is a much more complex program and a risk that the materials and manufacturing requirements may be so aggressive as to cause EVs to lose partial or complete eligibility, at least for a period of time.

The IRA is a big deal with a lot of parts that are out of scope of this EV-focused post. Nonetheless, what is arguably the most controversial aspect of the EV proposal goes to what is at the core of the bill as a whole. That is its big bet on industrial policy to revive domestic industry with an eye towards not only emissions reduction, but jobs and national security – a combination of tax incentives; direct pay; and support for research, materials sourcing, and manufacturing, coupled with consumer incentives, not only for EVs, but for solar, storage, and heat pumps. In my view, the design is a good one that will lead to private investment, job creation, leadership in industries of the future, and a lower risk profile. You don’t need a long memory to recall the serious shortage of PPE early in the pandemic or the continuing shortage of microchips.

Automobile manufacturers are objecting to how aggressively the materials and manufacturing requirements are put in place and how quickly they escalate. We will see where this lands. I don’t take what the manufacturers say at face value. Many of these companies are the same ones that fought airbags and lobbied (with some degree of success) to loosen CAFE standards.

The other controversial part of the IRA is its provision to tie granting of oil and gas leases to renewable energy development. I  don’t see the point in tying the development of fossil-fuel assets to renewables. However, in the scheme of things, I think there will be a fossil-fuel long-tail no matter what we do, and there is enough here to generate a robust adoption of cleaner technology that will create a positive feedback loop and erode fossil-fuel demand. The simple fact is that as renewables scale and become cheaper, fossil fuels become less cost competitive.

The fact that the IRA has a 10-year lifespan is a great thing. Our government has never had a consistent energy policy to speak of. This makes for much greater certainty in the investment environment.

EV Material and Assembly Requirements

• Upon enactment (August 16th), the current incentive remains in place for the balance of 2022, but the domestic final assembly (of the vehicle, not the battery) provision will apply immediately. I’m not sure why they felt they had to lower the boom so quickly. Any EV that is imported will no longer be eligible and there are some major ones. Hyundai, Kia, Polestar, and Toyota are some of the manufacturers importing EVs to this country.
• The new tax credit is split into 2 parts: sourcing of critical minerals and assembly of batteries, each valued at $3750.
  • These begin in 2023.
  • 40% of critical minerals must be sourced from a country with which the USA has a free-trade agreement. This escalates each year until it reaches 80% in 2027, where it stays through the duration of the bill.
  • 50% of battery components must be manufactured and assembled in North America. This escalates until it reaches 100% in 2029.
  • It is possible that many EV manufacturers will not meet one or both of these requirements because they have to reorganize their supply chains and augment domestic manufacturing.
  • Beginning in 2025, none of the critical minerals can be extracted or processed from a foreign entity of concern. This is obviously aimed at China, but it affects other countries as well.
  • Beginning in 2024, none of the battery manufacturing can occur in a foreign entity of concern.
  • Recycling of retired batteries that occurs in North America can be counted toward the required percentages.
  • As noted above, final vehicle assembly must be in North America as of 8/16 (unless a binding contract had been signed and the customer is awaiting delivery). That is table stakes.
  • The final assembly and sourcing provisions do not apply to used EVs.

There have been reports of intense lobbying happening around these requirements. We’ll see if there is a grant of a waiver. There is also some rule-making to be done. For example, the NY Times wondered if a Chinese battery company like CATL were to build a facility here, whether that would escape the “entities of concern” provision.

This is a list of currently eligible vehicles on the Department of Energy website: https://afdc.energy.gov/laws/inflation-reduction-act. The list applies to 2022. 2023 is TBD.

Price Caps and Means Testing

• There is a price cap for new vehicles of $55,000 for a sedan and $80,000 for an SUV, van, or pickup. For prospective Tesla buyers, it means the Model Y gets more support than the 3. These definitions are drawn from the EPA classifications.
• Used EVs have a price cap of $25,000.
• A used EV has to be at least 2 years older than its model year.
• A used vehicle is eligible if it is the first transfer of a vehicle subsequent to the enactment of the legislation. It is intended to prevent multiple incentives per vehicle. Further, the transfer has to be to a different person (i.e. a person cannot get the incentive for buying a vehicle off-lease).
• The used incentive cannot be utilized by a person more frequently than once every 3 years.
• Eligible new car buyers are limited to a max adjusted gross income of $300,000 for joint filers, $225,000 for a head of household filer, and $150,000 for a single filer.
• Used EVs are income limited to $150,000 for joint filers, $112,500 for head of household filer, and $75,000 for a single filer.
• Neither the income limits nor MSRP cap are indexed for inflation over the 10-year course of the bill.

The federal MSRP cap seems to work differently than it does for the state incentive. Based on reporting in the NY Times that said, “Rivian’s electric pickups start at $72,500 but can easily top $80,000 with options,” I am assuming that means the federal definition is inclusive of options. This differs from what the state uses, which is the base MSRP of the trim level (i.e. excluding options). This will make it more difficult to have a chart of available vehicles such as there is with the CHEAPR website. The Department of Energy’s Alternative Fuels Data Center will likely publish such a list, but it will have to be hedged as “may” be eligible. You can always use a VIN decoder, which will tell you the particulars of a vehicle such that you can determine if it is eligible. The downside of that approach is that it is not usable unless you are far enough into the purchase process to have a VIN. Anyway, here it is on the NHTSA website: https://www.nhtsa.gov/vin-decoder

It will be interesting to see if as we, hopefully, emerge from the supply chain mess, manufacturers will make an effort to get their vehicles under the price caps. Of late, it has been going in the other direction.

Keep in mind that the income caps are binary. If you are within the cap, you get the full credit. If not, you get nothing.

It strikes me that having both an MSRP cap and means-testing is overkill. Until the income-limited incentives were introduced in 2021 for CHEAPR, the program used the MSRP cap as an indirect form of means qualification. It would probably get you to a similar place and be less intrusive.

In general, the more rules, the more difficult it is for the consumer, resulting in lower utilization than otherwise might have occurred. There are a bunch of rules here.

Tax Credit and Transference

• The new tax credit allows the purchaser to take the tax credit as is done now at filing time with the flexibility to use either the current or prior tax year to determine income eligibility.
• Alternatively, the purchaser can assign the credit to the dealer and receive the funds as a rebate at the time of purchase. This also solves the problem of someone who doesn’t have enough tax liability to use a standard tax credit.
• Transferring of the credit to a dealer goes into effect in 2024.
• When the credit is transferred, it is up to the dealer to verify eligibility. Only the prior tax year can be used in this instance and hopefully, there are adequate privacy protections in place.
• In order for a dealer to accept the transfer, they have to be registered with the Secretary of the Treasury. There appear to be some considerable burdens placed on dealers to comply with the program.

E-bikes and auto cycles

• Sorry, nothing here. An e-bike incentive was included in Build Back Better, but did not make it to the IRA.
• Auto cycles, such as the 3-wheeled Aptera vehicle do not qualify, nor do electric motorcycles.

Those individuals who had a binding contract, but had not taken delivery, of a vehicle that lost eligibility on August 16th  or will lose eligibility next year, will still receive the tax credit. To be clear, the contract had to be in effect before August 16th, 2022.

Bill Stalled in the Senate

CT News Junkie is reporting that SB 214 will not be called for a vote in the Senate. This bill is also referred to by opponents, pejoratively, as the “Tesla bill,” though it would apply to any manufacturer of exclusively battery electric vehicles that does not have an existing franchise network and is not majority owned by a company that does (Ford has a minority stake in Rivian), and would allow them to open stores for the sale and delivery of their vehicles in CT.

As quoted to News Junkie, the bill’s sponsor, Senator Will Haskell of Westport, co-chair of the Transportation Committee said, “I think we have the votes in the Senate, I just think we’re out of time.” He also claims there are Republican votes in the Senate, which would be a change from last year.

The bill passed out of the Joint Transportation Committee by a vote of 22 – 12 with one absent and was not exactly along party lines. One Republican senator on the committee voted “yea.” That was John Kissel. Several Senate Democrats voted against the bill in committee: Steve Cassano, Rick Lopes and Norm Needleman. Democratic Representatives Matt Blumenthal and Christine Conley were also no votes. Republican Representatives Tom O’Dea, David Labriola, Irene Haines, and Tami Zawistowski were yes votes.

This bill is considered controversial – but only in Hartford! Consumers overwhelmingly support it. Public testimony given to the committee is also overwhelmingly supportive. Outside experts on the left, right, and center of the political spectrum support direct sales. But there is an entrenched and well-financed local special interest, the dealerships, who vigorously oppose it and marshal a number of specious arguments to do so. Here is a more detailed explication of our point of view with supporting data.

Whether the votes were there, or one vote short, as was allegedly the case last year, is immaterial. Opponents have consistently been able to run out the clock on this measure, no doubt working with some legislators behind the scenes to prevent the bill from coming to a vote. If the committee chair can’t count a majority, it doesn’t get brought up. That way they keep their dealers happy and don’t have to directly face their constituents. Also, if a bill does not come for a vote, it does not get counted in the environmental scorecard of the League of Conservation voters, so it is also a form of green-washing. A number of club members aided us in our efforts by contacting their legislators. Many get a response along the lines of, “I am looking at it very closely,” a way of saying no politely. Democratic Senator Julie Kushner held a press conference with the United Auto Workers, where part of her statement characterized Elon Musk as “already ruler of the world.” Excuse us, Senator, this is not about Elon Musk. It is not even about Tesla. It is about your constituents.

This Is an Election Year

Changes are afoot. Senator Haskell is leaving the legislature. He represents what is considered a swing district that was represented by Republican Toni Boucher for 10 years before Haskell defeated her in 2018. She has announced her candidacy. Republican Senator Kevin Witkos, who was rumored to be a possible yes vote, is not standing for re-election. Representative Laura Devlin, who was a no vote in committee, is GOP gubernatorial candidate Bob Stefanowski’s running mate.

Consider your vote carefully. Don’t hesitate to ask candidates for a direct response on their stance on this issue. Direct sales is the single most impactful measure that can be taken to accelerate the pace of EV adoption. The data are clear from the experience of other states.

We will come back to membership next year asking for support. Despite the discouragement of this and past years, we will need to respond in force. There are more of us every year. They can’t ignore us forever.

Major Changes to CHEAPR Incentive Program Coming

The big environmental omnibus bill with 16 parts to it passed the legislature today. It awaits the signature of the governor.

CHEAPR Highlights

• Eliminates the program’s sunset date, which was December 31, 2025.
• Expands the board and turns into a strictly advisory body. In other words, DEEP makes all the decisions.
• MSRP cap is raised from $42,000 to $50,000. (It remains at $60,000 for FCEVs.)
• Loosens eligibility for income limited (known as LMI) rebate eligibility. The current program, which has awarded very few rebates, requires someone to be using certain government assistance programs, such as SNAP (food stamps), Operation Fuel, and others. It now adds an income threshold of 3 times the poverty level, which translates to $83,250 for a family of 4 or $40,770 for an individual.
• Adds a minimum $500 rebate for e-bikes (DEEP has discretion to modify it) for an e-bike costing no more than $3,000. This rebate is intended for income limited individuals. (The legislation isn’t totally clear – it says “prioritize granting incentives” to these individuals.)
• Raises the CHEAPR budget considerably. CHEAPR will now receive the entirety of the GHG fees collected during registration. This would yield roughly $8 million compared to the current $3 million budget. But that’s not all. The program, beginning in 2024, will also get proceeds from the RGGI (regional power plant cap and trade) program that previously went to the Green Bank.
• Incentive amounts are not addressed in the bill. They are set by DEEP.
• Expands eligibility from the current residential owner only to include municipalities, businesses, nonprofits, and tribal entities. These new entities can receive up to 10 incentives in any one year with a total cap of 20. Entities operating entirely in environmental justice communities can be allocated additional incentives by DEEP.
• DEEP is required to submit a report on program performance to the legislature on an annual basis.

A Number of Other provisions Are in the Bill.

Here are some of them.

• Accelerates the transition to EV school buses. There is a requirement that by 2030 in environmental justice communities and by 2040 elsewhere, all school buses must be electric or “alternative fuel.” (Alternative fuel includes natural gas, hydrogen, propane, or biofuels. These are not zero-emission vehicles and we don’t agree with this aspect of the legislation.) A major change is that school districts are able to enter into contracts that have a maximum 10-year duration, up from 5. This enables EV school buses pencil out. The bill establishes a grant program to help municipalities fund the transition, which is administered by DEEP.
• Prohibits purchase of diesel-powered transit buses as of 2024.
• Requires 50% of the state’s vehicle fleet to be electric by 2026.
• Adoption of the California emission standards for medium and heavy-duty vehicles. This made it through after failing last year and it is a big deal. It includes a voucher program to offset some of the cost for fleet owners to make the transition, funded out of the CHEAPR account. These same fleet operators will be able to tap the utility incentives to offset the cost of charging infrastructure and mitigate demand charges.
• Traffic signal matching grant program. This helps municipalities fund smart traffic lights (which really do reduce emissions).
• Right to charge legislation. The objective is to prevent condo associations or landlords from unreasonably refusing a request from a resident to install an EV charging station. We will be examining this in more detail to understand the various use cases.
• The discount that all of us EV owners have enjoyed with respect to vehicle registration goes away.
• In general, it makes available funds to leverage federal matching grants, something that last year’s failed TCI legislation would have done.

When Will CHEAPR Changes Be Implemented?

There is an open question regarding when the changes in the CHEAPR program will take effect. The bill has language about July 1, but that is unrealistic. The implementation logistics take time. The last time there were significant changes to CHEAPR, particularly the addition of the LMI incentives, it took 6 months to develop the back-end. Now they need to get into income-verification, which is something they tried hard to avoid previously. Aside from the restrictiveness of the current LMI eligibility, one of the barriers to its use is that unlike the main CHEAPR rebate, which is cash on the hood, it is provided after the fact, forcing an income limited individual to float the cash. If there is any way to make this a credit on the invoice, that would be a big improvement. There was a lengthy discussion at the board meeting in March about the administrative burden of doing that. The next CHEAPR board meeting is in June and perhaps some of these details will be addressed.

Omnibus Transportation and Energy Committee Bill Includes Support for EVs

Aside from SB-214 that would enable direct EV sales, there was another significant bill that advanced to the full chamber in SB-4 which passed by a committee vote of 23 – 11.

CHEAPR

Changes to the state EV purchase-incentive program, CHEAPR, are one aspect of the bill.

• The MSRP cap for eligible vehicles is raised to $50,000.
• The budget of the program is being increased, though an exact amount is not specified.
• Changes are coming to incentives designed for income-limited individuals that will broaden eligibility and raise the incentive. The current formulation has had a very low take-rate. If a way can be a found so that it can be cash on the hood as is the case with the standard incentive, that would also help. There are incentives for both new and used EVs.
• There will be an e-bike incentive of $500 for individuals who are income-limited or live in an environmental justice community. Eligible bikes have a price cap of $2000. (There is some discussion regarding whether that cap is unrealistically low.)
• Currently, CHEAPR incentives are only available to residents. This bill expands it to include businesses, municipalities, non-profits, and tribal entities. It entitles them to up to 10 rebates in a single year with a total cap of 20.
• The CHEAPR Board is changing. The specifics of who is eligible to be appointed are being modified. The board is losing some agency and becomes an advisory board.

DEEP released a discouraging stat that only 34% of eligible vehicles are being sold with a rebate. This number starts with June of 2021, so the lifetime cap would not be an issue. There could be a few reasons for this, but at the risk of being IFO, this is a point of sale rebate and the point of sale is the dealership. According to the Center for Sustainable Energy, the consultant that runs the program for DEEP, Tesla has the rebate integrated into its checkout flow. The dealers should do the same, and in general be more proactive about educating customers about the program.

These are some of the other items in SB-4:

• Right to charge language that would make it easier for residents of multi-unit dwellings to be permitted to install a charger.
• A requirement that any state funded project not contribute to emissions, either directly or via an offset.
• Mandates to increase the electrification of the state vehicle fleet until it covers 100% of the fleet by 2030.
• Funding for the installation of EV charging stations in the rural areas of the state that are not likely to benefit from the Infrastructure Bill funding, which focuses on major highway corridors.
• School bus contracts would be permitted to be extended to 10 years from the current 5, making the numbers pencil out for electric.
• A prohibition on purchasing/leasing diesel transit buses beginning in 2024.

Passing out of committee is just the first step. However, SB-4 has 56 sponsors and is thought to have a high likelihood of becoming law.

SB-214 Passes with 21 Votes

SB-214 has passed the Transportation Committee by a vote of 21-14. To see how individual members voted, check out the tally on the committee website.

Legislators are offered time to comment before the vote is taken and several took the opportunity.

Representative Devin Carney (R) (Ranking Member), who is a no vote, said that there is no longer a need because dealerships are now selling EVs, a change from several years ago. He opined that Tesla is a legitimate company, but that other, newer entrants like Rivian and Lucid, with their difficulties in ramping production, are not, and thus do not deserve this “carve-out.” He also objected to characterizations made of the legacy companies that they don’t care about the environment, and cited some of the challenges of sourcing the materials necessary for battery manufacturing from places like the Democratic Republic of the Congo.

Representative Jonathan Steinberg (D), a longtime supporter of direct sales, said this year’s bill was an improvement over past bills. (The bill is restricted to battery electric vehicles and is no longer just a Tesla bill). Steinberg notes that the dealers say that direct sales will hurt their businesses but that the data from states where direct sales is legal just don’t support that conclusion. He thinks the entire auto purchasing relational experience will change, that it’s about competitiveness, and that this bill supports consumer choice. Interestingly, he said that he would support a bill that goes further than this one and do away with the franchise laws entirely.

Representative Stephen Meskers (D) said he was a yes because “at some level, the markets should decide.” His main concern was about whether this would extract profits from the state and vowed to engage with Tesla and the other companies to push them to maximize their investment in CT, including vocational-technical training.

Senator Henri Martin (R), voting no, complained that he doesn’t understand why this bill keeps coming back year after year. He feels that this bill does not protect consumers, questions whether there will be adequate servicing facilities, and that it comes down to having two sets of laws.

The actual committee vote was more bipartisan than the above comments might indicate. However, as best we know, last year there were no Republican votes in the Senate for this bill (since the bill didn’t get called, there was no recorded vote). That is something we hope to see change.

Bills similar to SB-214 have made it out of committee in the past but haven’t made it across the finish line. The Senate is the next stop for SB-214.

We think that Representative Steinberg is spot on. This industry is changing but it needs to change faster. Consumers overwhelmingly support this legislation. Now is the time to tell your legislators that you support the free-market and consumer choice, and that the current, antiquated laws are holding back EV adoption.

You can use this page to find your state senator and representative.