Which EVs Qualify for the New Electric Vehicle Tax Credit? It’s Complicated.

The Inflation Reduction Act changes which new EVs get a tax break and for the first time includes a credit for used-EV buyers

By Keith Barry

Some new and used electric cars may be getting more affordable for consumers thanks to new tax credits, but details in the fine print are causing confusion about which new vehicles might qualify for immediate savings.

As part of a broad new legislative package—the Inflation Reduction Act—that addresses climate change, healthcare, and taxes, there is a new tax credit of up to $4,000 on used electric cars and revised tax credits of up to $7,500 on certain new EVs. (See the list of 2022 and 2023 models that qualify.)

But due to numerous new rules about where new EVs must be built and their batteries sourced, automakers argue that too few vehicles qualify, and EV advocates are concerned that the requirements may make it difficult for consumers to find a vehicle that qualifies for the credits. In the meantime, many shoppers who are in the market for an EV right now are waiting for more details to be finalized so they can find out which vehicles are eligible for a credit, and how much that credit could be.

"If you’re interested in an EV or a plug-in hybrid and it qualifies for a tax credit today, don’t wait, because it might not qualify next year. But if you’re considering a used EV, it might be worth waiting," says Jake Fisher, senior director of Consumer Reports’ Auto Test Center.

A requirement that vehicles be made in North America in order to qualify for a tax credit went into effect today as soon as President Biden signed the law, while some other rules don’t apply until after regulations are finalized.

Among other provisions, the new bill:

• Offers a new tax credit of up to $4,000 on used EVs put into service after Dec. 31, 2023.

• Takes away the 200,000 vehicle cap on tax credits that made EVs and plug-in hybrids from Tesla, GM, and Toyota ineligible.

• Does away with today’s tax credits for pricey EVs—such as the Hummer EV, Lucid Air, and Tesla Model S and Model X.

• Eliminates tax credits for vehicles not assembled in North America, including the BMW i4, Hyundai Ioniq 5, Kia EV6, and Toyota bZ4X.

The bill also immediately restricts the full tax credit on new EVs to vehicles with battery minerals sourced from countries that the U.S. has a free trade agreement with or recycled in North America, and with battery components sourced from North America.

Starting in 2024, if any minerals or components are sourced from “foreign entities of concern,” including China or Russia, the vehicle will not qualify for any tax credit. An analysis this year of the EV supply chain from the International Energy Agency shows that the vast majority of minerals, components, and battery cells are currently sourced from China. This restriction doesn’t apply to used vehicles.

“The EV tax credit requirements will make most vehicles immediately ineligible for the incentive,” wrote John Bozzella, president and CEO of the Alliance for Automotive Innovation, an auto industry trade group.

A Congressional Budget Office analysis shows that the bill budgets for $85 million in new EV tax credits for the 2023 fiscal year, which only translates to about 11,000 new vehicles sold with full $7,500 credits. That number jumps to about 60,100 EVs in 2024.

For comparison, about 630,000 battery-electric and plug-in hybrid vehicles were sold in the U.S. in 2021—a number that must grow if the U.S. is to meet its greenhouse gas reduction targets. Those goals call for half of all new light-duty cars sold in 2030—accounting for millions of vehicles—to be zero-emission vehicles.

“It’s good that it’s focused on building a base of processing and manufacturing here, but at the end of the day it’s going to be really complex to implement and explain to consumers," says Brett Smith, technology director at the Center for Automotive Research.

As far as used vehicles are concerned, the CBO estimates 24,750 used EVs will qualify in 2023, and about the same number in 2024.

Despite this initial confusion, the bill is a major achievement overall, says Quinta Warren, PhD, associate director of sustainability policy for Consumer Reports.

“This bill has enormous potential to be a game-changer for consumers and clean transportation,” she says. “Our research shows that a growing number of consumers are interested in getting electric vehicles, but many have questions about costs and charging, and this bill would help lower some of those barriers.”

The bill, which was passed by the Senate and the House, was signed into law by President Biden earlier today.

A CR survey shows that more than half of car buyers would be more likely to purchase an EV if a tax credit brought down the price. (You can find out which vehicles currently qualify here, at CR’s EV incentive finder.)

Until now, buyers of electric cars and plug-in hybrids could get up to a $7,500 federal tax credit as long as the manufacturer hasn’t sold more than 200,000 qualifying vehicles. Once an automaker reached that point, the credit began to phase out—which is why Tesla and GM vehicles have not qualified for a federal tax credit for several years. Toyota recently reached this sales milestone and will see its tax credits ratchet down, as well.

Chris Harto, CR’s senior policy analyst for transportation and energy, says that the provisions set forth in the bill might slow EV sales in the short term, but that it’s a “massively positive” benefit for EV adoption as a whole.

“Over the longer term automakers will adjust, bring their EV and battery manufacturing supply chains to North America, and ensure that American tax dollars are going to support American jobs,” he says. “Even though some vehicles that currently qualify will become ineligible, those tax credits were going to run out eventually—and likely pretty quickly for most popular vehicles—so the benefit would have been short-lived.”