Do you, and your dream electric vehicle, qualify for new $7,500 credit?

The latest federal program to encourage electric vehicle purchases starts this week, offering the single largest financial boost available to buyers — a $7,500 tax credit — in hopes of cutting the use of fossil fuels.

The new program makes some Tesla vehicles eligible for credits once again and guarantees availability of the money until 2032. And in California, buyers can stack the federal credit with a state credit of up to $7,000, depending on eligibility. But buyers will be subject to income limits and manufacturers will have to contend with new federal restrictions on where the components of qualifying cars can be made, complicating the process for many.

Still, Brian Moody, executive editor of AutoTrader, said the credits should help broaden electric vehicle sales beyond the “early adopters” who have bought EVs even though they typically cost more than gas vehicles. “You’ve removed the barrier of price for some people,” Moody said.

The new tax credit, created under the Inflation Reduction Act passed in August, is part of the legislation’s heavy focus on reducing emissions that contribute to climate change. The program aims to restrict where vehicles and batteries can be made in a bid to help build domestic manufacturing capability, add jobs and reduce dependence on foreign producers.

Sales of new EVs in the U.S. rose from fewer than 100,000 in 2016 to more than 450,000 in 2021, according to the U.S. Bureau of Transportation Statistics. But EVs still make up a very small share of U.S. vehicle sales, which totaled nearly 12 million in 2021, the agency reported.

The new tax credit program scraps a provision of a previous $7,500 credit program that only allowed the first 200,000 EVs produced by any company to qualify, and made Tesla and General Motors vehicles ineligible. It adds income caps for buyers, along with price caps for vehicles, and a requirement that final assembly takes place in North America.

To be eligible for the credit, a car must have a manufacturer’s suggested retail price of $55,000 or less, and a van, SUV or pickup truck must have an MSRP of $80,000 or less.

The new credit program applies to certain vehicles at certain prices from Audi, Ford, Nissan, Rivian, Chrysler, Jeep, Tesla, Volkswagen and Volvo, according to the IRS. Other automakers, including General Motors, Kia and Subaru, have entered into written agreements to qualify for the program, but have not yet submitted a list of eligible vehicles, the agency said.

Not everyone is happy about the new restrictions. Tony Rohayem, general sales manager at Volkswagen of Oakland, said the earlier version of the program, without the price and income caps and assembly requirement, made buying an EV simpler for consumers. “It’s going to be a harder decision to go electric with these restrictions,” Rohayem said.

Additionally, customers have been canceling orders made months ago because the car they ordered now doesn’t qualify for the rebate because it was not assembled in North America, he said. “The federal movement kicked this in very quickly and a lot of people got screwed in the middle,” he said. “It’s pretty messy.”

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