Electric cars

With the upcoming elimination of the $7,500 tax credit, don’t miss the affordability window

With the upcoming elimination of the $7,500 tax credit, don't miss the affordability window

The track seems shorter for two new affordable electric vehicles from Toyota and Nissan.

That’s because both brands are closing in on a sales hurdle that will no longer allow buyers to claim the $7,500 federal electric vehicle tax credit, which could make all the difference for those considering a Toyota bZ4X Where Nissan Ariyarespectively.

The credit, called 30D by the IRS, has changed the lives of many families by helping them afford an all-electric vehicle or plug-in hybrid sooner than they otherwise would have. As the largest consumer incentive offered by the federal government to drive acceptance of electric vehicles, it is widely supported and has also helped automakers absorb some of the cost of expensive batteries.

Although there is still a chance that a revamped and renewed tax credit for electric vehicles— offering up to $12,500 per vehicle — could be passed, we are left with the existing tax credit for the foreseeable future. And under its rules, when automakers sell 200,000 qualifying plug-in hybrids and/or electric vehicles, they trigger a 12-month phase-out period starting the following quarter.

Tesla Model 3 2019

Tesla already hit its cap of 200,000 vehicles in the third quarter of 2018, leading to a full removal of the credit after December 2019. GM was a quarter behind, with a full removal at the end of March 2020.

It should be noted that the electric vehicle tax credit does not disappear when these automakers reach the threshold. The following quarter, the tax credit is half the amount ($3,750 for electric vehicles), then two quarters later it drops to a quarter of the total amount ($1,875 for electric vehicles) for two full calendar quarters.

Since phasing out the electric vehicle tax credit, Tesla has mostly raised prices, while GM has worked to keep its lowest-priced electric vehicle affordable. Along with a refresh of the product, he repositioned the 2022 Chevrolet Bolt EV and EUV, giving it a price cut of around $5,500. However, Nissan applied almost the same price cut to its Leaf, making it the cheapest electric car on the american market.

2022 Chevrolet Bolt Electric

2022 Chevrolet Bolt Electric

According to Loren McDonald at EVA adoptionthree other automakers currently have more than 150,000 cumulative sales toward elimination: Toyota, Nissan and Ford.

Toyota is the closest, with around 190,000 eligible vehicles through 2021 according to McDonald’s latest estimate (not yet reflected on this link).

Officially, Toyota Motor North America says it likely won’t hit the 200,000 unit cap until “the second half of 2022.”

Toyota was unwilling to release an exact count, and it cautions that its own time estimate is speculation, based on various market factors.

2021 Toyota RAV4 Prime XSE

2021 Toyota RAV4 Prime XSE

Some of them, like ongoing chip and component supply issues, would include how it can keep pace with deliveries of plug-in hybrid Prime models. Toyota sources have also hinted that it may soon expanding its family of Prime plug-in hybrids— with a Highlander Prime, for example.

The sundown of 200,000 vehicles for the credit could be approaching faster than Nissan predicted months ago. He noted last week that Leaf had its best February sales in eight years, with a 300% increase in interest in Leaf, based on web traffic to its consumer site.

The Leaf had reached a sales total of 165,000 by the end of 2021. Given the surge in Leaf sales, the total has likely exceeded 170,000 and could approach 175,000. Nissan does not update sales in the United States than quarterly, so we can get a better idea by next week.

2023 Toyota bZ4X at the EVgo charging station

2023 Toyota bZ4X at the EVgo charging station

The affordability of these two models will depend heavily on the electric vehicle tax credit and, to some extent, other incentives. The bZ4X is expected to start well below $40,000, while Nissan said a base version of the Ariya will start around $40,000.

Given the higher production figures expected by Ford for its two Mustang Mach-E and his Lightning F-150it could also hit the 200,000 vehicle threshold in the next year, depending on how quickly it ramps up those models and if there are other supply issues.

This could all change if Congress decides to re-increase the tax credit. But if you’re relying on the EV tax credit for affordability, our best advice: Make that reservation as soon as those base models are announced.