Electric vehicle buyers in the U.S. can now get a purchase tax credit from the government, and it has pushed the price of several high-volume EVs below the average price paid for a new car in America.
There are currently seven high-volume EVs that cost less than the average new car, including two
(ticker: TSLA) models. Buyers should look at those if they are thinking about going electric.
EVs had a good year in the U.S. in 2022. More than 800,000 all-battery electric vehicles were sold, up about 66% from the 491,330 sold in 2021. Fourteen models sold more than 10,000 units in 2022, up from nine models with more than 10,000 units sold in 2021.
The top sellers with more than 10,000 units sold, in order, are: the Tesla Model Y, Tesla Model 3,
(F) Mustang Mach E, Chevy Bolt, Tesla Model S, Tesla Model X, Hyundai Ioniq 5,
(VOW.Germany) ID.4, Kia EV6,
(RIVN) R1T, Ford F-150 Lightning, Audi e-Tron, Nissan Leaf, and
Not all of those vehicles qualify for the new $7,500 tax credit. Cars need to be assembled in North America. That rules out Hyundai, Kia, Mercedes, as well as the Audi e-Tron.
There is a pricing test too. Trucks and SUVs need to be priced less than $80,000 and sedans need to be priced less than $55,000. That rules out the Model S and X as well as the EQS.
Of the remaining vehicles, certain trims of the F-150 Lightning, Tesla Model Y and Model 3, Ford Mach E, VW ID.4, Nissan Leaf, and the Chevy Bolt can be purchased for less than the average price of a new car in America, which was almost $50,000 in December.
(The Rivian R1T qualifies for the credit, but a base model is still about $60,000 even with the savings. That is more than the average price for a new car.)
An F-150 Lightning can cost less than $49,000 including the tax credit. A Chevy Bolt can cost less than $20,000. A Tesla model Y can cost less than $46,000. And an X3 starts around $46,000. The tax credit is putting EVs within the reach of more car buyers.
“It is a tax credit, not merely a deduction,” says accounting expert Robert Willens. “That means that it reduces your tax liability—not merely your taxable income—dollar for dollar.”
To claim the credit, you have to purchase a new, qualified EV or fuel cell electric vehicle. The credit is means tested: Buyers are ineligible for the credit if modified adjusted gross income is greater than $300,000 for those married filing jointly and greater than $150,000 for single filers.
“You can use your [adjusted gross income] for the year you take delivery of the vehicle or the preceding year, whichever is the lesser,” adds Willens.
It is a good deal for now. The tax credit might change in March. The IRS, which responsible for implementing the credits, is working on implementing other rules related to where battery packs are assembled and where batteries and battery materials are purchased from. Most batteries and battery materials are sourced from China which could push the credit down to $3,750 for some vehicles.
For now, the amount is $7,500 per qualifying vehicle.
Tesla had to cut its U.S. prices to get the Model 3 and Model Y cheap enough to qualify for the credits. The price cuts haven’t bothered investors. They seem encouraged by the potential for higher sales with the lower pricing. Since the cuts on Jan. 12, Tesla stock is up about 3%. The
Dow Jones Industrial Average
are down about 2% and 3%, respectively.
Tesla’s price cuts aren’t helping other auto makers though. Ford, GM, and Mercedes shares are down about 9%, 7%, and 5%, respectively.
Write to Al Root at firstname.lastname@example.org