How the Inflation Reduction Act Will Encourage Americans to Buy Electric Cars

April 20th, 2023 by

The Inflation Reduction Act will expand tax credits on eligible electric vehicles, and promote broader domestic manufacturing of American EVs

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Luxury Electric VehiclesThe Inflation Reduction Act (IRA) was signed into law by President Joe Biden in August of 2022. The wide-ranging law has a number of goals which are intended to have long-term benefits on the American economy. Among these are provisions to promote clean energy and further incentivize the manufacture and ownership of electric vehicles.

Sorting through all of the provisions in this expansive act is not easy to do. As it pertains to electric vehicles, the IRA introduced a few elements which should make them more accessible in the near future. Here is a quick summary of all the ways the IRA should help make EVs more prevalent on America’s roads.

Supply Chain

Previously, many major EV manufacturers had a sales cap of 200,000 vehicles in order to maintain tax credit eligibility. This meant that consumers could not receive a federal tax credit on vehicles made by a manufacturer after reaching their sales cap. The cap was initially put in place to encourage manufacturers to produce more electric vehicles. However, as EV production has ramped up in recent years, the cap became an obstacle, rather than a motivator.

The IRA removes this sales cap, meaning more car buyers will be able to receive federal tax credits. However, only electric vehicle models with final assembly in the U.S. will now be eligible for the full federal tax credit. While this may mean fewer tax credits at first, this law is designed to encourage more domestic manufacturing. The hope being that, in the future, more American-made EVs will be on the road than ever before.

EV Affordability

One of the biggest hindrances to EV ownership for most Americans has been the upfront cost of most EV models. While electric vehicles cost less to operate than gas engine vehicles, they typically cost more to buy. The IRA seeks to resolve this issue in a couple of ways. Lifting the 200,000 vehicle sales cap is one such step.

Another key measure taken to increase the affordability of EVs has to do with the way tax credits are applied. Beginning in 2024, consumers will be able to transfer their federal tax credit to the point of sale. This means the tax credit is essentially applied upfront, at the time of purchase. As a result, eligible EV models may come with a $7500 discount on the initial price tag.

It is also hoped that the increased focus on domestic manufacturing will lower the cost of most EV models. By relying more heavily on domestic materials and American manufacturing centers, supply chain costs and friction will be lowered. This will, in turn, lead to more EV sales and more affordable rates for middle class households.

Commercial & Used EV Tax Credit

Some aspects of the IRA have rendered certain electric vehicle models ineligible for tax credits. However, other aspects of the bill will expand the availability of tax incentives for EV ownership.

First, and most importantly for the average consumer, will be a new tax credit for used electric vehicles. A purchase of a used EV will now come with a tax credit of 30% of the sale price, with a cap of $4000. Used EVs are not subject to the same domestic manufacturing requirements as new EV models. This means that individuals can still claim a tax credit on an internationally-manufactured EV.

A second new tax incentive will be applied to the purchase of commercial electric vehicles. As with used vehicles, commercial electric vehicles will be eligible for a 30% tax credit. These credits will have specific caps based on vehicle weight. But the intention of this incentive is to electrify commercial fleets across America, severely reducing our nation’s carbon footprint.

To summarize, the Inflation Reduction Act will make electric vehicles more accessible through a multifaceted retooling of the EV industry. First, a greater focus on domestic manufacturing with relaxed sales caps will result in wider availability of electric vehicle models. On top of that, tax credits for eligible electric vehicles will be drastically expanded.

Read more about the cost of ownership of electric vehicles to learn more about the differences between gas and electric-powered cars. Or read about the available state and federal tax incentives for EV ownership.

When you purchase an LEV through Ray Catena Auto Group, you’ll get the guidance you need to make the most of your high-performance new electric car and enjoy the open road in the electric future. Learn more about why LEVs need less maintenance or finding an EV charging station.

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