EV Article Outline/Comstock’s Magazine, 1500 words

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Going Electric Gets More Complicated, the Inflation Reduction Act Transforms the EV Tax Credit Incentive

 

Market Conditions and the Growth of EVs

 

Electric vehicles (EVs) are on the rise, both in numbers and pricing. What was once a hobbyist or university research project, has emerged as a major growth sector in the worldwide automotive industry. There are now 4.3 million EVs in the world (source EV Volumes.com, www.ev-volumes.com/country/total-world-plug-in-vehicle-volumes)  and approximately 1.1 million are in California. In 2021, California registered 563,000 of them. (U.S. Department of Energy, Alternative Fuels Data Center, www.afdc.energy.gov/transatlas/#/state=CA)    In the United States, the EV share of the auto market is now 4.6 percent. Between 2020 and 2021, the California market grew by 32 per cent.

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The intersecting economics of high gas prices, worldwide inflation impacting electronic equipment/microchips, and explosive consumer demand has led to a rapid rise in dealer pricing. EVs currently range from $25,000 to $100,000, with an overall average of $65,291 per Cox Automotive/Kelly Blue Book. That figure is $17,000 higher than the typical internal combustion engine (ICE) car.  As EV prices rise, the importance of EV tax credits and rebates has become critical to the market. In California, the combined federal, state, and local incentives can reach $16,000 depending on income and vehicle program restrictions. Under current rules, most California buyers can qualify for around $10,000 in credits and or rebates.

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Enter the Inflation Reduction Act of 2022

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On August 16, 2022, the federal guidelines for EV tax credits were dramatically transformed. On that day, President Biden signed the Inflation Reduction Act (IRA), a sweeping legislation that raised corporate taxes, reduced Medicare medication costs, revised environmental programs, and expanded energy tax credits. The result of the act has made qualifying for the $7,500 federal EV tax credit much more complex.

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Edith Thacher, spokesperson for the Sacramento-Roseville Chapter of the Citizens Climate Lobby, a national grassroots organization that advocates for bipartisan climate legislation, summarized the environmental aspects of the new law:

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“The IRA incentivizes clean energy, electric cars, and electric homes while investing in green technology to ramp up U.S. manufacturing and meet new demand. It provides a range of incentives to consumers. It is the most significant investment in climate action the U.S. has ever undertaken. The new EV credits are intended to bolster economic growth in the U.S. and make the electric vehicle more affordable to low- and moderate-income households.”

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The Changing Rules of the EV Tax Credit

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The current federal rules have been fairly straight forward. Before August 16, 2022, there were no income restrictions for the credit. All new EVs and PHEVs were eligible for up to a $7,500 tax credit. The old law does not provide a federal credit for used EVs. A stipulation limiting the number of vehicles per manufacturer to 200,000 per year had become a stumbling block for some automakers, particularly high sellers Chevy and Tesla. The new law eliminates that provision on January 1, 2023.

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The new law established income limits per household ($150,000 for singles, $300,000 for Joint filers), set a price ceiling of $55,000 for sedans and $80,000 for SUVs/Trucks/Vans. In 2023, used EVs can also receive a credit up to $4,000. The most significant change of all, the limitation of the credit by geographic location of vehicle assembly. (https://afdc.energy.gov/laws/409). The IRA favors vehicles produced for final assembly in North America, defined as the North American Trade Zone—the U.S., Canada, and Mexico. The production credentials are by vehicle identification number (VIN) which is the official tracking mechanism of the U.S. Department of Energy.

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This geographic imperative, intended to generate North American jobs and sales tax income, severely limits the number of EVs that can qualify. Currently, there are 27 eligible new vehicles listed on the U.S. Department of Energy website. For 2023, that number has fallen to five. There are also rules that apply to battery production. More than 50% of the battery materials must be sourced in North America. According to the Alliance for Automotive Innovation, no EV batteries currently qualify (https://www.autosinnovate.org/ ).   It may take a year for the auto industry to retool. Currently most of the raw materials and battery production occurs in Asia. The IRA set up several manufacturing incentives for raw material and battery production.

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How are EV Proponents and Consumers Reacting to the IRA?

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EV sales have slowed in the last quarter of 2022 as consumers navigate all the tax code changes and face rapid price increases at the dealerships. Since 1995, local consumers have an advocate in the Sacramento Electric Vehicle Association (EVA). Sac EVA is the area chapter of the national non-profit Electric Vehicle Association. Sac EVA has 800 members who own or lease EVs or PHEVs. The organization provides educational events and website information for the general public and the approximately 100,000 vehicle EV vehicle market in the Sacramento Region. Board members Guy Hall and Cynthia Shallit offered this assessment of the IRA’s impact upon the EV market:

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            “The change in federal EV tax credits will shift EV purchasing power towards low- and median-income families…for the first time there will be incentives for used EVs. There also will be substantial incentives directly to EV manufacturers to increase production of EVs and batteries in the U.S. and North America.

            We think our membership and everyone else who is interested in fighting climate change is excited about the new IRA incentives. There is a “wait and see” attitude because EV supply is low, and prices are up. Demand will continue to increase because owning an electric vehicle can be less expensive than a gas-powered car. A recent study showed that the Nissan Leaf is $74/month less to operate than the comparable Nissan Roque Scout. Also, cars are responsible for 70% of carbon emissions—a gas powered car produces 3 metric tons of carbon per year. Even accounting for the carbon footprint of electrical power facilities, the electric car has 75% less emissions.

            The convenience factor of owning an EV has dramatically improved. More than 80% of EVs sold this year have a battery range of over 200 miles. There are over 3,500 public chargers in the Sacramento Region. The charging infrastructure has over 700 high speed DC chargers in 150 charging stations.

            After an initial adjustment period, the EV market will return to its rapid growth.”

 

 

California State and Sacramento Regional EV Incentives

 

California has had its own set of incentives for over a decade. These programs are not affected by the passage of the IRA. The three main programs that are available are: the California Clean Vehicle Rebate Project, an income-based rebate up to $7,000; the California Clean Vehicle Assistance Program which provides grants and low interest loans to lower income households (i.e., $106,000 for a family of four); and the Sacramento AQMD Clean Cars 4 All program which targets used and less polluting older vehicles with mileage under 75,000.

The California Clean Vehicle Assistance Program is out of funds and has a massive waiting list. It is targeted at low-income households.

The California Air Quality Management’s Clean Cars 4 All has funds of up to $9,500 per lower income applicant ($83,000 for a family of four) that can be used for the purchase of EVs, PHEVs, and Hydrogen Cell cars. The program can also fund home chargers. An applicant must reside in a targeted low-income zip code. The program is only active in region Air Districts with high levels of air emission pollutants. Sacramento is one of those districts. Unfortunately, the program has closed due to insufficient reserve funds.

 The California programs are financed by the State Cap and Trade system and the General Fund. The revenues from these sources have been lower during the past three years. That makes the California programs vulnerable during a declining economy.

   

According to Gamaliel Ortiz, a spokesperson for Sacramento Municipal Utility District (SMUD) the electricity provider focuses its current efforts on charging infrastructure. SMUD offers rebates up to $1,000 on Level 2 EV charging systems for residential customers (the program has provided 1,200 units since it began) . The utility also provides lower rate charging for EVs during the off-peak hours of 12 AM to 6 AM. “Driving an EV at SMUD’s discounted EV rate is like paying less than $1 per gallon of gas,” said Mr. Ortiz.

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The Pros and Cons of the Inflation Reduction Act

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The nature of EV tax credits and incentives is complex and evolving. Individual consumers need to realize that the federal credits are not a universal fix for the affordability issues surrounding the move to electric cars. Due to income restrictions and detailed requirements regarding the location of assembly, each car buying decision has become unique. In 2023, there will be a fewer number of vehicles eligible for tax credits.  Over time, the new regulations and incentives should cause vehicle costs to fall as the United States gains the capacity to build batteries and cars domestically.  California buyers will have some additional incentive and rebate support from State and local agencies. There is uncertainty about the funding capacity of California programs, so buyers need to thoroughly research programs before relying on their financial resources.

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The future of the EV market is strong, and the advantages of EV ownership will continue to increase as gas prices remain high and our nation seeks solutions to climate change to address the adverse impacts of carbon gases. 

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Plug Star Buyers App  https://smud.plugstar.com/tools/vehicle-incentives  

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 Department of Energy list of Vehicles Assembled in North America

 https://afdc.energy.gov/laws/electric-vehicles-for-tax-credit

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