Could the new federal tax credit for electric vehicles reduce electric car sales by the end of the year?

Now that the US Senate has agreement to reform the federal electric vehicle tax credit, it looks like it might finally happen after about two years in the works. Although the vote is still pending.

But it raises an interesting question: Will this lead to a drop in electric car sales by the end of the year since it is not retroactive?

The answer is both yes and no. It depends on the models and the car manufacturer. It’s actually quite a complicated situation.

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

The main thing that should prevent sales of electric cars from falling by the end of the year is that the proposal includes a provision that the current federal tax credit will be offered to people who place an order for a new electric car this year before the bill is signed into law. , even if it is delivered in 2023:

The transition provision for electric vehicles with written sales orders dated 2022 before the date the president signs the bill, but delivered in 2023, allows the buyer to claim the “old” credit in 2023.

This will be good for all EVs still eligible for the current credit — meaning the automaker has delivered fewer than 200,000 EVs in the U.S. and their phase-out period has not yet ended.

But what does this mean for companies like Tesla and GM, whose buyers don’t have access to current credit? Will buyers want to wait for the new incentives to take effect before buying their electric cars?

It depends. Tesla already has high demand for its cars, and much of that demand comes from fairly wealthy people who make over $150,000 as individuals and $300,000 as joint fillers. This means that Tesla is likely to retain a significant portion of its market share this year.

As for the rest of the requirements, some of them are more complicated.

Technically, the base Model 3 and both versions of the Model Y must meet the new MSRP limits as long as the Model Y is officially considered an SUV.

Things get complicated with the new requirement that 40% of battery minerals and 50% of battery components come from the United States or countries that have free trade agreements with the US. It’s harder to confirm today, but I doubt the base model 3 will meet these requirements as it is believed to be equipped with LFP batteries from China.

If the Model Y does qualify as an SUV, it has a much better chance of being approved as it is equipped with 2,170 cells built at the Nevada Gigafactory with plenty of minerals from North America and Australia.

So by the end of the year, the Model Y may be more affected, but with a large backlog and higher income earners not yet eligible, I doubt it will have much of an effect.

As for GM, the Bolt EV, Bolt EUV, and Cadillac Lyriq may qualify for price, but it’s almost impossible to know if they qualify for battery. I think the Bolt EV and EUV will be the hardest hit by the end of the year, but with the recent drop in pricesi think most of the available units will still be sold.

So, to answer the question, for the most part no: EV sales will not depend on the new credit not being retroactive, except perhaps for a few models.

Now for another interesting question: Who will be the biggest winner from this new incentive for electric cars? They will answer soon.

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