The $430 billion Inflation Reduction Act signed this week by President Joe Biden includes a $7,500 federal tax credit for electric vehicle (EV) purchases. However, just 30% of all EVs on the market meet the law's strict requirements to qualify for the tax credit, and none would meet the requirements set to go into effect in 2029.
The rules that will go into effect as soon as the bill is signed state that EVs need to be manufactured in North America in order to qualify for the credit. The new, stricter rules on the tax credit mean that, after 2029, EVs must be manufactured in North America using only materials sourced from the U.S. or other official trade partners.
The vast majority of EVs run on lithium-ion batteries, and 76% of the lithium-ion battery industry is based in China. That means the tighter rule would disqualify all EVs currently on the market.
Even under the laxer rules, already, Porsche
One way buyers may be able to access the credit even if their vehicle doesn't qualify is by signing a contract to purchase an EV before the law has been ratified. The bill includes a "transition rule" that states that any buyer who has entered a binding purchase contract before the bill has been signed may qualify for the credit.
"With respect to customers who placed vehicles on order and are still awaiting delivery, their credit eligibility depends on individual sales agreement, which is a matter between them and their independently owned and operated Porsche dealership," a spokesperson for Porsche Cars North America said.
VW, which owns Porsche, and Audi have both come out to encourage potential buyers to sign a binding contract rather than placing a reservation. Reservations are a small refundable down-payment buyers can make on an EV, but they are not explicitly covered under the transition rule.
The buyers who are most likely to qualify are those in a binding contract to purchase an EV that has not yet been delivered by the time Biden signs the bill. This so-called "transition rule" applies to binding contracts, but it may not apply to reservations. Because of this rule, many carmakers have been encouraging customers to quickly sign a purchase contract before the law comes into effect to increases the likelihood that they'll qualify.
While the tax credit was initially seen as a way to boost demand and investment in EVs, analysts are now concerned that the confusion around qualifying will actually make it more difficult for customers to make a purchase, potentially leading to a decline in demand.
