Updates on CHEAPR Implementation

Almost one year ago, SB-4 was voted into law as Public Act 22-25, an environmental omnibus that made extensive changes to CHEAPR, the state EV purchase incentive program. The easiest change, raising the MSRP cap from $42,000 to $50,000 was implemented in July. The other changes required extensive platform revisions and we are just now getting to the point where these other items will go live. Below is the slide from the deck that DEEP presented that outlines the timetable.

Revised income-limited (LMI) program

The program remains on track to launch the revised income-limited program, including a pre-qualification voucher in second quarter. Our guess is that it will likely be toward the end of the quarter, especially since they have yet to make a final selection of a marketing vendor. These LMI rebates are known as Rebate+ New and Rebate+ Used.

To recap, the new LMI program expands eligibility to individuals or households earning up to 3 times the federal poverty rate. The current program requires enrollment in designated governmental assistance programs, which is more limiting. The other important addition is the ability to become qualified before the purchase and get a voucher. This way the incentive will be cash on the hood like the standard CHEAPR rebate. The current post-purchase process will be retained, as well, for the sake of continuity. We suspect it will fall away in time but that will be based on utilization data.

The LMI rebate for new vehicles is $2000 that gets added on to the standard $2250 rebate. There is also a $3000 rebate for used EVs. Used rebates can only be obtained if the vehicle is purchased through a dealer (either a new car dealer that sells used vehicles or a used car dealer), in other words, not through a private sale.

The LMI incentives have really struggled for traction since they were introduced, with only 8 being given out during calendar 2022 (5 new, 3 used). This change is sorely needed, along with effective marketing.

Expanded Options for Used EVs?

The eligible used vehicles for the Rebate+ Used have been restricted to vehicles that were eligible for the standard rebate when new. We never saw the point of that since these are income-limited rebates. We feel any used EV should be eligible. We have spoken to DEEP about this and we expect there will be a revision here, which would be effective when the new Rebate+ program goes online in a couple of months. Stay tuned.

Expansion to Non-Residential

At present, the incentive is available only to individuals. In the third quarter, referenced in the slide as “CHEAPR Fleets launch,” eligibility will be expanded to businesses, fleets, non-profits, municipalities, and tribal entities. This could potentially be a huge pool of purchasers. These entities are capped at 10 incentives in one year and 20 total.

E-Bikes

The state will incentivize e-bike purchases, something that was left out of the federal IRA legislation. This will be a gradual rollout over the remainder of the year, with possible tweaks continuing even after that. It is possible for an LMI individual to get as much as $1500 towards the purchase of an e-bike with an MSRP of no more than $3000.

Program Performance

CHEAPR has been underperforming for years, defined as spending below its budget. It started to happen in a serious way in 2019 when the MSRP cap was lowered from $50K to $42K. The reversal of that as of July 2022 is helping, though we are in a more difficult environment at this time with higher prices and constrained supply chains.

The program rebated $1,894,000 for 1174 rebate instances in 2022. This remains less than the program’s old budget of $3MM annually, and way less than its new budget which is between 2-3 times that, depending on how much is collected in greenhouse gas fees. Not to mention that unused funds rollover. There is a substantial available war chest to fund the expanded program.

The 1174 rebate number is less than the 1408 in 2021. However, the pace picked up in the second half of 2022 after the MSRP cap increase, increasing 69% (737 vs 437) over the first half, and slightly higher than the 696 of the second half of 2021. The 216 rebates in Jan and Feb of 2023 are pacing well ahead of the corresponding period from 1 year ago when the number was 116.

34% Utilization Rate

The biggest area of concern is the utilization rate. which DEEP reported to be 34%. In other words, 34% of rebate-eligible vehicles actually got a rebate. This has been an ongoing pain point and has been the single biggest reason that it has been difficult to budget for this program. There could be several reasons for this: lack of promotion/consumer awareness, lack of dealership participation, and potentially important, we have heard that not all finance companies, which hold the title to leased vehicles, have set themselves up to deal with the rebate.

The changes to the program made in PA 22-25 are good ones and we will do our part to get the word out.

Restructured Residential Managed Charging Incentives

For the first year of the program, there was one incentive program. This was a so-called demand-response (DR) program, where the EDCs would declare demand events during peak load periods on hot days. These occurred during 3-9 PM on weekdays from June through September. They don’t happen all the time, just when demand is very high due to heavy air-conditioning use.

The new plan revises this DR incentive and adds a second level of incentive known as Advanced Managed Charging, or Advanced Tier.

Before getting into the details, let’s zoom out a bit.

As noted, current peak demand periods occur during hot summer afternoons. In a fully decarbonized, meaning electrified world, demand patterns will significantly change. If heat pumps become the primary means of climate control, they will be working hardest on the coldest nights where gas and oil do the heavy lifting now. The summertime demand will be reduced since heat pumps are more efficient than AC compressors. So the Public Utilities Regulatory Authority (PURA) wants to inculcate in consumers the habit of thinking about peak and off-peak utilization as a year round thing, while still responding to the near-term load-shedding needs that occur over the summer.

The Authority directs the EDCs to implement an annual passive managed charging program for the residential Baseline Tier, with the on-peak period of 3:00 P.M. to 9:00 P.M. weekdays

participants shall be eligible for a maximum monthly incentive of $10, so long as the customer charges the EV at least 80% of the time during off-peak hours for the given month

EDCs will stagger start times to prevent “timer peak.”

These new programs are anticipated to be effective as of April 1, 2023.

Baseline Tier

The Baseline Tier is structured in 2 parts with separate payouts.

The first is a Passive Managed Charging tier where participants charge 80% or more of the time during the off-peak period and would be entitled to a $10/mo award. Peak times are 3 PM – 9 PM weekdays for this monthly incentive.

Additionally, the Demand Response Events remain during June to September where participants are encouraged to not opt-out of optional DR Events. There can be up to 15 such events, occurring between the hours of 3 PM – 9 PM per month. Participating (i.e. not opting) out in all events in a given month would entitle a Participant to and additional $20/mo for the four DR months.

In total, customers could earn $120 ($10/mo for 12 months) and $80 ($20/mo for 4 DR months) for a total of $200 in Baseline Tier. The total amount of the incentive remains unchanged; only the structure is different.

Advanced Tier

This tier is referred to as Active Managed Charging, where participants work with their utility to set a daily charging schedule that avoids on-peak charging. Customer inputs the State of Charge (SOC) that they need and a Time Charge is Needed (TCIN) and the utility does the rest. Participant can set these as default, for example, “every day, I need 100% charge at 7am” and the utility does the rest. They can also adjust these inputs as needed. Participant is responsible for not overriding the schedule where that act of overriding causes them to charge on-peak. Participants are able to opt out in such a way twice in a given month and still retain their incentive – any more and they forfeit the incentive in that month. There must be a minimum of two at-home charging sessions during the month. The incentive is $25 per month or $300 per year.

Peak time is the same 3 PM – 9 PM as in the Baseline Tier.

Of the comments noted in the docket, the most interesting was from DEEP, which “opined that rather than limiting charging under this tier to solely off-peak hours, the Advanced Tier should instead allow charging during all hours and provide dynamic managed charging to real-time grid conditions.” That would be an optimal approach as, for example, it would take into account weather and distributed energy resource contributions, rather than the current flat approach of set time periods. Ultimately, that is the way we need to go.

Note: Purchase, installation, telematics enrollment incentives are unchanged. In the original docket there was an enrollment option involving a device that would be placed on a dumb charger. There is no sign that one has been approved. There was no mention of anything about it in the participation data.

Additional Funds

Eversource and United Illuminating, the electricity distribution companies or EDCs, have reported high rates of participation for the DCFC (level 3) part of the program, as well as for the installation of level 2 chargers at Multiple Unit Dwellings (MUD). The MUD incentives apply to buildings with more than 5 units and are governed by the rules for commercial incentives. The Public Utilities Regulatory Authority (PURA) has authorized making more funds available in the near term (by accelerating funds designated for other years). Eversource and UI have compiled waitlists for applications received subsequent to funds depletion which will now be able to be included.

Leasing Program for Level 2 Chargers at MUDs

MUD = Multiple Unit Dwelling.

For these dwellings, defined as having 5 or more units, PURA has directed the EDCs to implement a leasing program for EVSE (chargers) as of February 2023. It is felt that some buildings may find it challenging to foot the upfront cost for multiple chargers/ports, even with the incentives and that leasing could ease overcome that. Furthermore, it allows the homeowner associations or building owners to gain experience with charging and tenant interaction.

The leases will be offered for 5 years, followed by an option to renew for another 5 years (at a lower price to reflect depreciation). At the conclusion of the second lease period, the dwelling will have the option of buying the chargers or allowing the EDC to repossess them.

During the lease period, the EDCs are obligated to engage a third party to maintain the equipment.

These are the prices listed in the December docket for the first 5-year term and are not final. Note that they are reflective of the distance between the EVSE and electric service.

Managed Charging for MUDs

How to charge for the power and offer incentives for load-shedding are complicated in an MUD setting, given that incentives are not always aligned between landlords and tenants, and there could be competition between tenants for less expensive charging slots. The EDCs have been directed to propose a voluntary opt-in managed charging program for MUDs for review by May 1 and implementation by July 1, 2023.

Rivian Service Center Stalled By Dealership Lawsuit

We’ve seen this movie before.

In a replay of what we recently saw with Tesla, a lawsuit by an auto dealership has stalled the opening of a service center by a company that employs a direct sales business model. As reported in the GreenwichTime, the Town of Shelton approved a permit for Rivian to build a service center and this was appealed by Mario D’Addario Buick, Inc. As noted in the article, the complaint states that the facility will engage in the “sale of new and used Rivian vehicles in violation of Connecticut law.”

Tesla previously received a permit from East Hartford to open a badly needed second service center in Connecticut. Hoffman Auto promptly filed an action specifying a similar basis. East Hartford subsequently withdrew the permit and Tesla did not further pursue the matter. The company continues to scout for another suitable location.

Of course, both Rivian and Tesla know the law and don’t have plans to violate it. However, if the law were to be changed, and it has come before the legislature repeatedly (thus far unsuccessfully), their use of the facilities may change accordingly.

There is a difference between the Rivian and Tesla cases, which is that Rivian plans to use the proposed facility to deliver vehicles bought online. In Texas, another state that bans direct sales, Tesla has been able to deliver new vehicles at its service centers. They do not make deliveries in CT.

With a hat-tip to Philip K. Dick who coined the phrase, pre-crime refers to knowing someone is going to commit a crime they haven’t yet committed, and is in the realm of science-fiction where it belongs. In our version of reality, it amounts to dealerships using the franchise laws pretextually to make getting these vehicles serviced as inconvenient as it is to buy them. It is part of the dealerships’ continuing campaign to stifle competition and consumer choice.

Can Leasing Be a Workaround for the IRA EV Incentive Restrictions?

Post by Barry Kresch

This notion was floated a while back and I dismissed it as a fringe theory. However, it seems to be gaining traction.

The EV incentive is complicated, confusing, and a moving target. There are a lot of rules for consumers to understand. Manufacturers have to re-orient their supply chains in a hurry if they want to be compliant with battery and final assembly rules. And the IRS has not yet finished its battery-related rule-making, leaving us in a state of partial implementation for at least 3 months. Even a high level listing of all the rules is exhausting to read: North American final assembly, battery critical minerals sourcing percentages, entities of concern rule, battery North American manufacturing percentages, MSRP cap, income caps, confusing body-style rules, transfer option. It’s a lot.

These rules apply to consumer purchases of a new EV. There are also incentives for commercial EV purchases. There are some important differences, but the salient point for this post is that none of the consumer restrictions apply to commercial. When an individual leases a vehicle, the incentive goes to the dealer/lessor, which is a commercial entity. So does it, therefore, get classified as a commercial transaction? Consumer Reports writes that they have been told this is the case by a spokesperson at the Treasury Department.

The commercial incentive is 30% of the cost of a BEV/15% of the cost of a PHEV or the incremental cost over a replacement vehicle. These are capped at $7500 for vehicles under 14,000 pounds (light duty) and $40,000 for vehicles over 14,000 pounds. Per the Department of Energy, all light duty BEVs and most PHEVs qualify for the full $7500.

In addition to Consumer Reports, this has been reported in other major press outlets and is being discussed seriously by other organizations that are closely reading the IRS text. Senator Joe Manchin is hurling thunderbolts that he adamantly opposes this interpretation, that it goes against the intent of the law. He’s right about that, of course, but that may not matter. It’s the IRS’s ballgame now, (Section 45W). It could potentially be addressed legislatively but nothing is happening in this Congress (as of this writing, not even a Speaker). The fact that Manchin is that exercised is an indication that he is taking this seriously.

This seems to be the relevant language from the IRS:

“Q5. Is a taxpayer that leases clean vehicles to customers as its business eligible to claim the qualified commercial clean vehicle credit? (added December 29, 2022)

A5. Whether a taxpayer can claim the qualified commercial clean vehicle credit in its business depends on who is the owner of the vehicle for federal income tax purposes. The owner of the vehicle is determined based on whether the lease is respected as a lease or recharacterized as a sale for federal income tax purposes.”

A typical 36 month lease should qualify (i.e. not be in danger of being reclassified as a sale).

Leasing has always been a way for someone who does not have enough tax liability to make use of the full tax credit because it goes to the dealer. It is up to the buyer to press the seller for transparency regarding how much it is lowering the monthly payment as the seller is not legally obligated to pass it on to the consumer.

This is a major development. We will follow this and provide updates as they become available. If anyone tries to obtain this incentive, please share your experience with us.

One other note – while we are in this period before the battery minerals sourcing and manufacturing rules go into effect and the old battery rules are still in force (meaning incentives are most likely higher than they will be once the rules are implemented), Treasury has announced that eligibility for these temporarily higher incentives requires physically taking possession of the vehicle (the IRS language is “placed in service”) before the rules are in effect. A firm contract is not good enough, as it was regarding the August 16th start of the final assembly rule.

The photo at the top of the post is of a Hyundai Ioniq 5. It has been a well-received EV but is currently excluded from incentives because it is imported (though they’re building a factory in Georgia). It is one of the more significant models to be affected by this prospective development.

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.

Registered EVs by Make

The pace of new EV model introductions has dramatically increased over the past year, but it is still Tesla that is driving the largest share of adoption. In other words, Tesla leads in overall registrations, as expected, but continues to add more EV registrations than anyone else. These are crazy times as consumers and the industry wrestle with the fallout of a war, chip shortage, and disrupted supply chains. We don’t know how the trends will shake out, but for the first time we can really see a broader consumer EV demand across the board.

This is the trend of registrations by top EV makes. There are a relatively small number of companies that account for the bulk of the registrations, followed by a (very) long tail, longer than this static screenshot can accommodate. (An update will be posted to the EV Dashboard, which has the interactivity.)  The chart is ranked by registrations as of July 1, 2022.

Tesla has pretty much maintained market share. It is responsible for 42% (the same as in January) of all plug-in vehicles and 69% of BEVs, which is down from 71% in January. The movement in the numbers reflects the continuing shift in the market to BEVs. Both pie charts have the same title, but the second one is filtered for BEVs.

The growth with Tesla was still powered by the Model 3. Even though industry reports indicates the Model Y is the largest selling Tesla model (actually, largest seller among all EVs), there were more Model 3s added to this latest file. It may have to do with this file being net registrations and more trading of the Model 3 as a used vehicle, but even restricting the data to the 2022 model year, the Model 3 still has more registrations than the Model Y. There are now  Tesla added a net additional 3505 registrations and not has a total of 10,564, roughly 3x its nearest competitor.

This chart shows the relative growth contribution of each manufacturer over the past year.

Below are the individual Tesla models.

One of the questions we get is which new models are appearing in our data. This is an arbitrary selection of some newer models. Some were introduced more recently than others and many are back-ordered. Can you spell “s-u-p-p-l-y c-h-a-i-n?”

The second most widely registered make is Toyota, which has surpassed GM a few years ago and has grown its lead with the successful RAV4 Prime PHEV. That model appears to have taken share from its Prius stablemate. The new BEV, the bz4X, does not appear in the file. Included are 6 Mirai fuel cell vehicles and the discontinued compliance car, the BEV RAV 4. There are 3632 Toyotas.

Chevy follows next, having slipped from second to third. With Volt sales having been discontinued in 2019 and the prolonged, extensive Bolt recall, Chevy has been flat for a while, and actually slightly down from January. Its total is 1815.

In fourth position is Ford, which is on a growth curve with 2 successful, though supply-constrained, BEVs in the Mustang Mach-E and the F-150 Lightning. Very few of the latter have been delivered. The Ford total is now 1324. Ford looks to be positioned for the strongest non-Tesla growth if they can ramp deliveries.

Hyundai, boosted by its successful Ioniq 5, the company’s first purpose-built EV platform, comes next with 1301 total registrations.

The only other manufacturer with over 1,000 registrations is BMW at 1032. BMW has always had a large number of plug in models produced, but the X5 PHEV is the first one to get noticeable traction. Their new BEV models, the i4 and iX, have not made an impact as yet.

Volvo, Jeep, and Nissan have between 500 and 1000 registered EVs. Then the tail gets long with 31 makes represented among the population of registered EVs. In future posts, we will examine how we are pacing relative to goals, along with the geographic patterns across the state.

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.

Observant EV Owners Noticed Frequent Pings

Several people posting on Facebook and writing to the EV Club who have registered for the charging incentives via telematics noticed that their vehicles were being status-checked every 30 minutes. That is excessive from both a power consumption (it uses a modicum of power or battery drain) and data privacy perspective. And it had been doing this 24/7 since the program started. This only applies to Eversource customers as UI uses a different external vendor.

Eversource advised the EV Club that they are diminishing the frequency to once per hour, which still sounds like a lot, but is an improvement, and after the demand/response period ends after September, they will stop it altogether. They are testing alternatives and will roll out a new solution for 2023. There will also be a new managed charging program, likely with a two-tier option for enrollment. We will update those details as we get closer to the new year.

Thank you to those who called this out and supplied data.