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Inflation Reduction Act drastically cuts EV, plug-in hybrid models eligible for federal tax credit
Bengt Halvorson
BENGT HALVORSON AUGUST 16, 2022

With President Biden signing the Inflation Reduction Act on Tuesday, time is nearly up to get your purchase paperwork completed for a new EV or plug-in hybrid and still earn the federal tax credit.

While the revamped EV tax credit contained in the bill includes many top-level provisions that are likely to set the supply chain up for more American-made EVs soon, in the short term it will take away bottom-line money from many looking to purchase an EV or plug-in hybrid—and put some severe limitations on the number of choices you have in the market.

The tax credit knocks out higher-priced and luxury EVs, with a cap of $80,000 for vans, SUVs, and pickups, and a cap of $55,000 for passenger cars.

It also sets a maximum adjusted gross income (AGI) for those who can claim the credit, of $150,000 for single filers, $225,000 for heads of households, and $300,000 for joint filers.

2022 Rivian R1T
2022 Rivian R1T

There is an exception on the eve of the new rule, which starts as soon as Biden signs: A binding purchase contract will grandfather in the old qualification terms. Fisker may have had the right idea in tying up orders for its Ocean One launch edition recently. Fellow startup electric vehicle makers Rivian and Lucid are among several brands that have flexed the rules in recent days to help make more orders binding.

The tax credit is almost certainly gone for the rest of 2022 and will be back at the beginning of 2023 for a smaller group of vehicles. Some domestic-content and supply-chain rules need guidance from the Treasury Department, and automakers will shift to more U.S.-sourced batteries and components, but this won’t happen overnight—or even in a year.

In the meantime, we’ve looked at price and final assembly location—distilling the federal government’s current list of eligible vehicles in steps—as a starting point for getting a realistic idea of which vehicles will be eligible in calendar year 2023.

FULLY ELECTRIC VEHICLES
Electric vehicles that currently qualify but are too expensive to meet the new price caps:

Audi E-Tron GT
BMW iX
Genesis G80 Electrified
GMC Hummer EV
Lucid Air
Mercedes-Benz EQE
Mercedes-Benz EQS
Porsche Taycan
Rivian R1S
Rivian R1T

2022 Mercedes-Benz EQS AMG
2022 Mercedes-Benz EQS AMG


Electric vehicles that would continue to qualify by price but aren’t built in North America:
Audi E-Tron SUV and Sportback
Audi Q4 SUV and Sportback
BMW i4
Fisker Ocean
Genesis GV60
Hyundai Kona Electric
Hyundai Ioniq 5
Jaguar I-Pace
Kia EV6
Kia Niro EV
Mazda MX-30
Mini Cooper SE
Polestar 2
Subaru Solterra
Toyota BZ4X
Volvo C40 Recharge
Volvo XC40 Recharge

2023 Hyundai Ioniq 5
2023 Hyundai Ioniq 5


EVs that will likely qualify in 2023 on price and assembly point in 2023 (before tighter supply-chain rules):
Chevrolet Bolt EV (with the lifting of the 200,000-vehicle cap)
Ford Mustang Mach-E
Ford E-Transit
Ford F-150 Lightning
Nissan Leaf
Volkswagen ID.4
Tesla Model 3 (with the lifting of the 200,000-vehicle cap)
Tesla Model Y (with the lifting of the 200,000-vehicle cap)

2022 Tesla Model 3
2022 Tesla Model 3


PLUG-IN HYBRIDS
Plug-in hybrids will continue to qualify as clean vehicles eligible for the credit based on their battery size. But these simply don’t meet the price cut.

Audi A7 TFSI e Quattro plug-in hybrid
Bentley Bentayga Hybrid
BMW 530e xDrive
BMW 745e xDrive
Land Rover Range Rover Plug-In Hybrid
Land Rover Range Rover Sport Plug-in Hybrid
McLaren Artura
Porsche Cayenne E-Hybrid
Porsche Panamera 4/S E-Hybrid

2021 Porsche Cayenne E-Hybrid Coupe
2021 Porsche Cayenne E-Hybrid Coupe


These plug-in hybrids currently qualify on price but don’t have final assembly in the U.S.
Audi Q5 TFSI e Quattro plug-in hybrid
BMW X5 xDrive45e
BMW 330e and 330e xDrive
Hyundai Tucson Plug-In Hybrid
Hyundai Santa Fe Plug-In Hybrid
Kia Niro Plug-In Hybrid
Kia Sorento Plug-In Hybrid
Lexus NX 450h+
Mini Cooper SE Countryman ALL4
Mitsubishi Outlander Plug-In Hybrid
Toyota Prius Prime
Toyota RAV4 Prime
Volvo S60 Recharge Extended Range
Volvo V60 Recharge Extended Range
Volvo XC60 Recharge Extended Range
Volvo S90 Recharge Extended Range
Volvo XC90 Recharge Extended Range

2021 Toyota RAV4 Prime XSE
2021 Toyota RAV4 Prime XSE


Plug-in hybrids that will likely qualify in 2023 (before tighter supply-chain rules):
Chrysler Pacifica Hybrid
Ford Escape Plug-In Hybrid
Jeep Wrangler 4xe
Jeep Grand Cherokee 4xe
Lincoln Aviator Grand Touring
Lincoln Corsair Grand Touring

2021 Jeep Wrangler 4xe
2021 Jeep Wrangler 4xe
 

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Yeah, I talked to my sales manager yesterday, I bought my BRZ from him when he was a salesman there. He told me probably Sept sometime for the demo, but still has no real info. I told him about the US Tax Credit getting canned for Soletrras, and he thought that would be good for us, in Canada. ;)
 

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Sorry - I can’t tell if you’re being sarcastic or not.Would hate for that to be it.
It was not meant to be sarcastic. Toyota has a worldwide market and can sell the bZ4X in Europe. I suppose Subaru can as well, but the don't have that global scope. They concentrate on US, Canada, and Australia.
Selling the 2024 Solterra with a $7500 handicap may prove nearly impossible. California Air Resources Board does not require that Subaru or Mazda sell an EV, only a PHEV.

Does it make more sense for Subaru to wait until they have their own EV capacity and try to produce it at Indiana where it will qualify for federal tax credit?

Subaru Overseas Sales 1 Apr-30 June 2022​
Market
78.8%​
U.S.​
6.7%​
Canada​
2.4%​
Europe​
0.2%​
Russia​
5.3%​
Australia​
1.8%​
China​
4.8%​
Others​

Subaru's market outside of the US in 2019 was less than half of the US sales. Perhaps Subaru doesn't need to suspend EV sales enirely, as it can sell the Solerra in other countries where it doesn't face such a large artificial handicap?
105,075​
Japan​
57,524​
Canada​
33,075​
Europe​
7,810​
Russia​
40,007​
Australia​
25,204​
China​
46,714​
Others​
 

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It was not meant to be sarcastic. Toyota has a worldwide market and can sell the bZ4X in Europe. I suppose Subaru can as well, but the don't have that global scope. They concentrate on US, Canada, and Australia.
Selling the 2024 Solterra with a $7500 handicap may prove nearly impossible. California Air Resources Board does not require that Subaru or Mazda sell an EV, only a PHEV.

Does it make more sense for Subaru to wait until they have their own EV capacity and try to produce it at Indiana where it will qualify for federal tax credit?

Subaru Overseas Sales 1 Apr-30 June 2022​
Market
78.8%​
U.S.​
6.7%​
Canada​
2.4%​
Europe​
0.2%​
Russia​
5.3%​
Australia​
1.8%​
China​
4.8%​
Others​

Subaru's market outside of the US in 2019 was less than half of the US sales. Perhaps Subaru doesn't need to suspend EV sales enirely, as it can sell the Solerra in other countries where it doesn't face such a large artificial handicap?
105,075​
Japan​
57,524​
Canada​
33,075​
Europe​
7,810​
Russia​
40,007​
Australia​
25,204​
China​
46,714​
Others​
Given the sucky charging and other mediocre specs for the car, I honestly don't think the major European markets would even consider the Solterra. I am originally from Germany and have read the German VW website and they have tons of electric vehicles that handily beat the Solterra (id3, ID4, ID5 and ID6, IDBuzz). I also think the Solterra/bz4x is designed primarily to appeal to the North American market, although I have seen videos of the Solterra in Norway and even on a Hungarian website. The 33,000 Subarus sold in Europe are - my guess - mainly in Scandinavian countries.

I found this from the German Kraftfahrt Bundesamt (KBA), the German Department of Transportation.


Shows 3,440 new registrations for Subaru from January to September 2021.
It shows a total of 2,017,561 vehicles sold in 2021 with 821,612 vehicles having "alternative propulsion" (their term), so about 40%. Out of those, 478,121 were electric propulsion equating 23.7%. The US still has a lot of catching up to do, in spite (or because) of the IRA.
 

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I also think the Solterra/bz4x is designed primarily to appeal to the North American market, although I have seen videos of the Solterra in Norway and even on a Hungarian website. The 33,000 Subarus sold in Europe are - my guess - mainly in Scandinavian countries.
It isn't just about EVs. In CY2019 (pre-pandemic) Subaru sold 700,117 vehicles in the US and 341,595 in Japan and in other countries (of which 26,186 were Japanese mini-cars). That is an increase from 187,699 vehicles sold in the US in 2008.

The year ending 31 March 2009 was the last where the majority of Subaru's revenue (measured in JPY) was in Japan. The next year Subaru expanded sales in Northern America. Ten years later (pre-pandemic) revenue is muliplied by 234%, but the percentage of Revenue from Japan is down to 17%, while Northern America breaks 72%. But other regions including Europe, China, Russia, etc. are down below 11%.

(not in vehicle count)
31. Mar. 2009​
31. Mar. 2010​
31. Mar. 2020​
Revenue in JPY​
1. Apr. 2008​
1. Apr. 2009​
1. Apr. 2019​
Japan​
59.2%​
36.5%​
17.1%​
US and Canada​
37.8%​
43.5%​
72.2%​
Other Regions​
3.0%​
20.0%​
10.7%​

My point is that when Subaru began it's specacular growth in Northern America just as the Great Recession of 2007-2009 was coming to an end, the decade long growth was not matched in other export markets in Europe or Asia. Australia is Subaru's next significant export market outside of the US and Canada.

Mazda is a similar size company globally as Subaru, but Mazda is a more global company.

The new law only applies to these existing models
  • Nissan Leaf
  • Volkswagen ID.4
  • Chevrolet Bolt EV |EUV
  • Ford Mustang Mach-E | E-Transit | F-150 Lightning
  • Tesla Model 3|Y

The Solterra is competitive with the Volkswagen ID.4 AWD right now, but with a $7500 advantage, it might be a no-brainer.
  • 295 hp 2022 Volkswagen ID.4 Pro AWD SUV From $44,910
  • 215 hp 2023 Subaru Solterra SUV From $44,995
  • 82.0 kWh 400 V lithium-ion - VW ID.4 (251 mile range)
  • 72.8 kWh 355 V lithium-ion - Solterra (228 mile range)
  • 181″ L x 73″ W x 65″ H - VW ID.4
  • 185″ L x 73″ W x 65″ H - Solterra
 
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