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Fewer electric vehicles will qualify for US tax credits in 2024

Fewer electric vehicles will qualify for US tax credits in 2024

Efforts to fight global warming could be dealt a blow next year when new rules reduce the number of electric cars qualifying for federal tax credits.

Credits of up to $7,500 per vehicle have helped make electric cars more affordable, bringing the cost of some models below $30,000. Next year, for the first time, dealers will be able to give buyers a credit when they purchase a car, rather than claiming it on their tax returns.

But it will become more difficult to qualify for the subsidies on Jan. 1 as Biden administration rules aim to encourage automakers to build vehicles and parts in North America, bypassing China. Most automakers are still years away from breaking their dependence on China for essential materials like batteries and refined lithium.

Stricter regulations, which stem from the Inflation Reduction Act, pose another hurdle for electric vehicles. Sales of such cars and trucks are growing less rapidly than a year ago due to higher interest rates and drivers' concerns about finding charging stations.

Electric vehicles are still the fastest-growing segment of the auto industry, and Americans have purchased more than one million vehicles already this year. According to BloombergNEF, sales will grow another 32 percent in 2024 compared to 47 percent in 2023. But Ford Motor, General Motors and Tesla have slowed investment as the pace of growth has slowed.

List The number of fully electric vehicles that qualify for the tax credit was already limited. Under rules that took effect this year, the credit was available only for cars built in North America.

To collect the full credit, carmakers also must meet quotas on how much of their battery components and certain raw materials come from the United States or trade partners. Tesla, General Motors, Ford, Volkswagen, Rivian and Nissan are the only companies that offer electric cars that qualify for at least a partial credit. Some plug-in hybrid cars from Audi, BMW, Chrysler, Jeep and Lincoln also qualify for tax breaks.

The new rules, which come into effect on January 1, add another set of restrictions that will disqualify vehicles manufactured in China or with components made elsewhere by a firm under the control of the Chinese government.

“If it was already confusing for consumers, this makes it even more confusing,” said Kevin Roberts, director of industry insight and analysis at online marketplace CarGurus.

Tesla, which makes half of all electric vehicles sold in the United States, warned on its website that the least expensive Model 3 sedan and the long-range version will no longer be eligible after Dec. 31. A battery in cars is made in China. The existing credit brought the price of the base Model 3 down to about $30,000, on par with similarly equipped gasoline cars like the Toyota Camry or Honda Accord.

The strict rules would also disqualify Ford's Mustang Mach-E, which is eligible for half the credit and was the fourth-most popular U.S. electric vehicle this year. A spokeswoman said Ford is still figuring out whether the F-150 Lightning, an electric pickup, will qualify.

The rules are complex and may still be modified by administration officials, causing confusion among industry executives. In the worst case scenario, only a handful of vehicles will qualify.

Volkswagen said it is “cautiously optimistic” that its ID.4 electric sport utility vehicle, built in Chattanooga, Tennessee, will continue to receive credit.

General Motors said it is assessing whether its electric lineup, which includes an electric version of the Chevrolet Bolt and Silverado pickup, will qualify. Nissan, whose electric Leaf is eligible for half of the $7,500 credit, did not respond to a request for comment. Rivian, whose electric pickups and SUVs are eligible, also did not respond.

There's another way drivers can benefit from credits. Under an exception for businesses with vehicle fleets, the Inflation Reduction Act allows dealers to apply the subsidy to leased vehicles and pass it on to customers. That irritation has helped Hyundai and other foreign automakers remain competitive, even if they do not produce electric vehicles and batteries in the United States.

More than 40 percent of Hyundai's electric vehicle sales are leased, up from just 5 percent before the new restrictions were imposed this year, a spokeswoman said. The same provision in the law allows people who lease cars made abroad by Mercedes-Benz, BMW, Volvo and Polestar to receive the credit indirectly.

But leasing is not a panacea. Many people prefer to own their own cars and foreign automakers are angry that they are excluded from subsidies available to buyers. The electric vehicle credit is “overly complex and is unfortunately causing customer and dealer confusion,” Volvo Cars said in a statement.

But the lawmakers who drafted and passed the Inflation Reduction Act have said they wrote it to force carmakers to rearrange their supply chains. This is happening, but it will take some time for the change to bear fruit.

The list of eligible vehicles could grow through 2024 as carmakers increase U.S. production to qualify for credits and other subsidies.

Korean automaker Kia is expected to begin production of the EV9, a seven-passenger electric sport utility vehicle, at a factory in Georgia next year. A Kia spokesperson said domestically assembled vehicles should be eligible for half the credit, or $3,750.

Stellantis, which owns Chrysler, Dodge, RAM and Jeep, plans to introduce six mass-market electric vehicles in 2024, including versions of the Dodge Charger, Jeep Wagoneer and RAM pickup. The company has not said whether the vehicles will be eligible for the credit.

Some hybrids, which have internal combustion engines and electric motors, will also qualify if they meet sourcing requirements and have batteries with a capacity of at least seven kilowatt-hours.

A company spokesperson said the Chrysler Pacifica Hybrid will still be eligible for a $7,500 credit, while buyers of the Jeep Grand Cherokee 4XE and Jeep Wrangler 4XE Hybrid are expected to be eligible for up to $3,750.

Market forces are pushing down the prices of electric vehicles, a trend that is expected to continue as carmakers increase production. According to CarGurus, the average list price of an electric vehicle fell to $63,000 in November from $68,000 a year earlier. The average list price of a vehicle with an internal combustion engine was $48,000, the same as last year.

Federal subsidies and loans to battery factories and electric car plants are also helping lower prices. At some point during the next several years, analysts expect electric vehicles to become less expensive than internal combustion models even without tax credits.

“The long-term trend will be for prices to decline,” said Mr. Roberts of CarGurus. “You're going to see more mainstream vehicles.”



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