JD Adams for General Motors
- Not very many electric cars are expected to qualify for the EV tax credits as new rules set in.
- It will take time for car companies to prepare their EVs and supply chains in order to qualify.
- Some automakers might take discounts into their own hands in the meantime.
If your electric vehicle doesn’t qualify for tax credits, automakers might try to find other ways to drop the price and get you to buy one.
The IRS released new guidance last week about which EV models will qualify for credits of $3,750 or $7,500, and the rules made clear that very few cars will qualify, at least to start.
The incentives are supposed to play a major role in chipping away at the cost of EVs, making them more affordable for the masses, and potentially spurring more adoption.
Automakers, who are pouring billions of dollars into making their product lineups electric, can’t afford for their customers to not go EV. But it’s also going to be really hard to get the battery supply chain and other things in place that would get their cars to qualify, at least quickly.
So there may be other ways automakers take incentivizing EV purchases into their own hands.
“Anything’s on the table right now because at the end of the day, being able to say my vehicle is eligible for this credit, maybe my competitors’ isn’t, that’s a pretty critical piece of this,” Thomas Boylan, regulatory director at the Zero Emission Transportation Association, told Insider.
Where car buyers can expect discounts
Many car companies have already been encouraging customers to lease EVs instead — the automaker or their finance arm would technically receive the credit, but then they can pass that along to the customer in the form of a discount.
Car companies might also now try to give a point-of-sale rebate in the amount of the credit a customer would otherwise get “to make sure that their models are competitive,” David Camerucci, a manager in global location investment, credits, and incentives at the consultancy EY, said.
“Whether that’s making up the other $3,750 or providing the full $7,500,” Camerucci added, “I think there is going to be just a competitive marketplace out there.”
Lucid has already offered customers $7,500 off certain trims of its vehicles, which do not qualify for the federal tax credits by requirements around sticker price alone.
How much will automakers spend to make this work
We know Tesla likely won’t sit this one out — it expects the credit for the Model 3 will be reduced as a result of the latest guidance — given the price war the company started earlier this year.
Some automakers haven’t been willing to engage in the price war, but Ford did, lopping the price of its electric Mustang Mach-E by as much $6,000.
Navigating the credits and what it means amid the competition for market share will be a slippery slope as automakers already lose a lot of money on their EV businesses.
Ford lost $2 billion in 2022, and is on track to lose another $3 billion this year. GM isn’t anticipating turning a profit on electric cars until 2025. It took Tesla the better part of a decade to make money on its EVs.
“If you don’t have enough chips at the poker game, then you’re not going to be able to go all in when the other guy does. There’s a limit to how far you can discount,” Bill Russo, CEO of advisory firm Automobility, said.
“If you want to stay viable,” Russo added, “then you can’t afford not to be in the game.
“At least Ford has a balance sheet that they can tap into,” he said. “They have runway from their legacy business that’s profitable. And that gives them time, if their shareholders have the patience to allow them to burn capital as they try to get this rocket off the ground.”