Could new Federal EV tax credit crater EV sales until end of the year?

Now that the US Senate has an agreement on the reform of the federal tax credit for electric vehicles, it looks like it might finally happen after roughly two years of work. Though it’s still pending a vote.

But it does bring up an interesting question: Will it make EV sales crash until the end of the year since it’s not retroactive?

The response is yes and no. It depends on the models and the automaker. It’s actually quite a complicated situation.

First off, the incentive is not retroactive. The new credit applies to electric vehicles delivered after December 31, 2022 – meaning delivered in 2023.

The main thing that should prevent EV sales from crashing until the end of the year is that the proposal includes a provision to still offer the current federal tax credit to people who place an order for a new EV this year prior to the signing of the bill, even if it gets delivered in 2023:

Transition provision for EVs with written sales orders dated in 2022 prior to the date of President signing the bill but delivered in 2023 allows purchaser to claim the “old” credit in 2023.

This is going to be good for all EVs that are still eligible for the current credit – meaning that the automaker has delivered fewer than 200,000 electric vehicles in the US and their phase-out period is not over yet.

However, what does it mean for companies like Tesla and GM whose EV buyers don’t have access to the current credit? Will buyers want to wait until the new incentives come into effect before buying their EVs?

It depends. Tesla already has strong demand for its vehicles, and a lot of that demand is coming from fairly wealthy individuals who make more than $150,000 as an individual and $300,000 as joint-fillers. This means that it is likely to result in Tesla keeping a significant part of its market this year.

As for the other requirements, some of them are more tricky.

Technically, the base Model 3 and both versions of the Model Y should qualify with the new MSRP price limit as long as the Model Y is officially considered an SUV.

Where things get more complicated is with the new requirement that 40% of battery minerals and 50% of the battery components come from the United States or countries with a free trade agreement with the US. This is harder to confirm today, but I doubt that the base Model 3 will fit this requirement since it is believed that it is equipped with LFP battery cells from China.

If the Model Y does qualify as an SUV, it has a much higher chance of being approved since it is equipped with 2170 cells built at Gigafactory Nevada with a lot of minerals from North America and Australia.

Therefore, Model Y could be more affected by the end of the year, but with a strong backlog and higher-income individuals not qualifying already, I doubt it will have much of an effect.

As for GM, the Bolt EV, Bolt EUV, and Cadillac Lyriq could fit the price requirements, but it’s almost impossible to know if they fit the battery requirements. I think that the Bolt EV and EUV would be the most hurt until the end of the year, but with the recent price drop, I think most units available will be sold anyway.

Therefore, to answer the question, no for the most part: EV sales won’t be affected by the new credit not being retroactive, other than maybe for a few models.

Now another interesting question: Who would be the greatest winners of this new EV incentive? To be answered soon.