What dealers should know about the imminent U.S. EV tax credit

Published on

National legislation aimed at reducing inflation is quickly working its way through Congress and is anticipated to hit President Biden's desk for signature as soon as the beginning of next week. Newsworthy in itself, this is especially important news for automobile dealerships because when it is signed into law the Inflation Reduction Act (the "IRA") will cause immediate changes to the federal EV tax credit that will very likely impact vehicles already on your lot.

Although most of the provisions of the IRA will not become effective until January 2023, effective immediately upon signing the IRA the number of vehicles that qualify for the $7,500 federal EV tax credit will be substantially reduced by requiring that "final assembly" of the vehicle must occur within North America to qualify. According to the Alliance for Automotive Innovation, the list of EVs eligible for the federal EV tax credit will decrease from 72 vehicles to 25 vehicles as a result of this change.

In light of this imminent change, dealers should immediately take several actions. Contact your OEM(s) to determine which EV vehicles in your inventory will no longer be eligible for the federal credit. Educate your staff about this change and update all advertising and other promotional materials that reference the federal tax credit with regard to any vehicles that no longer qualify. And, of course, inform any potentially impacted customers.

With regard to customers who have already "entered into a binding contract to purchase" an EV prior to President Biden's signing of the bill into law, the IRA provides that the customer will still qualify for the credit (even if the vehicle isn't delivered until after the legislation is signed). This is good news with regard to vehicles already on your lot or ordered. It is important to note, however, that both NADA and the CNCDA strongly caution dealers against the practice of executing binding purchase orders prior to vehicle delivery in an effort to try to preserve eligibility for the current tax credit.

Although these immediate changes will require quick adjustments by dealers and customers, there is positive news on the horizon for both as well. When the entirety of the IRA goes into effect, new provisions will expand the EV credit to allow other clean vehicles to qualify, will eliminate the manufacturers cap and will allow consumers to transfer the credit to the dealer at the point of sale in 2024. A comprehensive summary of the new federal EV tax credit program, is promised to be forthcoming after the President signs this legislation into law.