2023-07-08 12:06:36
Thanks to a loophole in the Cut Inflation Act that allows vehicles made outside of North America to still qualify for tax credits, car buyers considering an electric vehicle now have more options to ease their pocketbook.
The government set out the IRA rules last year. It specified: For a buyer to get part or all of a $7,500 federal tax credit, the EV had to be assembled in North America and the battery and a percentage of other components might not be purchased by “a foreign entity of interest ”, which many interpret to be China.
Beginning next year and in subsequent years, an eligible clean vehicle cannot contain any critical minerals that have been obtained by a foreign entity of interest.
There are also price caps and income limits to meet: a car must be priced under $55,000 and trucks or SUVs must be priced under $80,000.
Income for an individual buyer must be less than $150,000 per year and for a household, less than $300,000 per year.
But because of a loophole Congress introduced in the law in August, which the US Treasury Department defined in December, consumers can now capture that full incentive by leasing the car instead of buying it, regardless of where it’s made. , where the materials are obtained from or any of the other rules.
“The leased electric vehicle tax credit is more of a Washington theater where politicians brag regarding their support for American industry but fail to mention the loopholes bought by lobbyists who destroy fictitious support,” said Erik Gordon of the Ross School of Business at the University of Michigan.
“Any car that is leased is classified as a commercial vehicle, even if it is a two-seat convertible. It would make more sense to classify tennis rackets as medical equipment because you exercise when you use them.”
Business partners rebelled
The reason behind the shallowness of Washington lawmakers lies in the nation’s relations with its trading partners, who objected following President Joe Biden’s administration laid out rules intended to support the domestic development of electric vehicles, Chad said. Bown, a senior fellow at the Peterson Institute for International Economics. .
“The tax credits were actually designed to encourage automakers to invest resources in developing low-end models that non-rich people would buy, in order to increase the number of electric vehicles that would enter the market,” Bown said.
He said data from the National Energy Association showed that in 2021, EVs accounted for less than 6% of the US auto market, while in China, EVs accounted for 16% and in Europe, EVs accounted for 16%. 18%.
“So the United States was really behind,” Bown said. “Suddenly, under the IRA, imported vehicles that used to be eligible for tax credits under the original 2009 law…were cut off. That is what upset trading partners a lot.”
French President Emmanuel Macron arrived in Washington in early December and told lawmakers from both political parties that the IRA was “super aggressive” toward European companies, according to Archyde.com.
Do you get the EV tax credit if you rent?
The Biden administration realized the political challenge with allies, Bown said. So, on December 29, the US Treasury Department decided to interpret a business vehicle as one that a business might lease and “that would give it access to a separate tranche of tax credit” in the IRA, Bown said.
“So if car companies set up a commercial leasing division and buy their own vehicles there, they get the tax credit and can pass it on to the consumer and it doesn’t have to be trucks or vans,” Bown said. .
“No other criteria apply. You can be super rich and qualify for this or the vehicle can be priced at any price. There is also no restriction that it was made in North America or that the batteries must come from outside of China. ”
The news sent some automakers into an aggressive leasing frenzy. Hyundai and Kia, for example, said they plan to increase leases from 5% of sales to 30% as a result of the IRA changes, according to a February article in the Los Angeles Times.
In fact, on June 27, Cox Automotive released a forecast saying that this year US EV sales across the industry will top 1 million units for the first time. EV’s share is approaching 7% of the total US auto market, Cox said.
The rental rate of electric vehicles skyrockets
From December through June, the leasing rate for imported electric vehicles has taken off, according to data from auto research firm Edmunds.com.
The Edmunds site reported that regarding 37% of electric vehicles purchased in April were leased, up from 17% in April 2022.
In May, regarding 44% were rented, up from 15% in the same period a year earlier.
By June, 44% was leased compared to 13% in the same period a year earlier. Here are some of the EVs that are seeing big leasing gains since the loophole went into effect, Edmunds data shows:
For EV6: in June, 72% were rented, up from 2% in June 2022.
BMW i4: in June, 66% were rented, compared to 11% in the same period of the previous year.
BMW iX: in June, 71% were rented, compared to 16% in the same period of the previous year.
Polestar 2: in June, 82% was leased, compared to 34% in the same period of the previous year.
Hyundai Kona Electric: in June, 68% were rented, up from 18% in the same period a year earlier.
Hyundai Ioniq 5: In June, 43% were rented, compared to 1% in the same period of the previous year.
Audi e-tron GT: in June, 85% were rented, compared to 31% in the same period of the previous year.
From this sample, the lease penetration rate for these vehicles has increased steadily every month since January, the first month following the lease loophole went into effect.
Ivan Drury, director of insights at Edmunds, surmises that most of the increase in EV leasing penetration listed above is being driven by automakers taking advantage of the credit loophole.
But Audi spokesman Whaewon Choi-Wiles said in an email to the Free Press: “Our sales strategy remains unchanged at this time,” adding that “e-tron GT sales were primarily driven by an increase in the offer”.
The leasing loophole benefits consumers beyond saving them money, Drury said.
“First-time EV owners are testing the waters and a lease makes the most sense,” Drury said. “Even experienced EV owners may know that these vehicles often have low waste; therefore, I prefer someone else to dispose of them, if possible.”
The loophole does not “100% eliminate the competitive advantage” given to Detroit automakers that have invested heavily in making their electric vehicles as American as possible, Drury said. But it “opens an angle” for foreign automakers that wasn’t there before.
“The immediate impacts have yet to be fully recognized, as many of Detroit’s upcoming EV launches already have customers lined up with reservations,” Drury said.
“But once the EV market saturates and early adopters and reservation systems rest, we’ll be left with most of the business, regular customers who want test drives, discounts, no wait times, and so on.”
That’s when “every dollar counts, every incentive gets attention,” he said.
“EV pricing is already difficult when it comes to cost recovery instead of maintaining a competitive advantage,” Drury said.
“Without the ability to clearly understand the price of the competition, automakers that meet all the requirements to get the rebate to their customers may need to price their vehicles more aggressively than previously planned.”
Does the Mach-E lease qualify for the tax credit?
At Ford Motor Co., tax credits are included in the mix of factors it considers as it works with Ford Credit to plan marketing programs and other incentives, said Marty Gunsberg, a Ford spokesman for Model e Communications.
“Leasing is an option for Mach-E customers who prefer it,” Gunsberg said in an email. The Mustang Mach-E does not qualify for the full tax credit on a purchase because its battery does not meet IRA fueling requirements. But you can transfer the full tax credit through a lease.
“Offers may vary by location and customers should contact their dealer to find out what’s available in their area,” Gunsberg said.
“Tax credits are included in the mix of factors we consider when we work with Ford Credit to plan marketing programs and other incentives.”
Foreign automakers expect leasing rates to rise
At Nissan North America, spokeswoman Jeannie Whited said the Leaf EV remains “an important component of Nissan’s electrification strategy,” which is why the company is offering the vehicle at a market-competitive lease price.
The Leaf S 2023 lease is currently available at $309 per month for 36 months with a $1,999 payment due at signing.
The Leaf SV Plus 2023 Lease is available at $399 per month for 36 months with a $1,999 payment due at signing. The prices take into account the $7,500 tax credit, Whited said.
At Toyota North America, spokesman Ed Hellwig said: “Under the provisions of the Inflation Reduction Act of 2022, as a leasing company, Toyota Lease Trust can claim tax credits for the leasing of battery electric vehicles (BEVs) and plug-in hybrid electric vehicles (PHEV) to consumers.
We partner with Toyota, Lexus and our private label client to pass the benefit of those tax credits on to clients. This makes leasing more affordable and puts more clean vehicles on the road.”
Hellwig said the tax credit for leasing customers is in the form of a “Rental Charge Factor (RCF) reduction on applicable vehicle leases.” Toyota does not break out its lease penetration rate from its total sales, Hellwig said.
But the automaker’s leasing penetration has been lower than normal “for some time,” he said, adding: “We expect EV leasing penetration to increase as a result of the incentive.”
Through Subaru Motors Finance, the automaker transfers the tax credit to leased electric vehicles, including the 2023 Solterra SUV, Subaru spokeswoman Diana Anton said.
“From Volkswagen’s perspective, we are not looking to increase the lease, because the Chattanooga-assembled ID.4 gets the full $7,500 tax credit, whether leased or purchased,” said Mark Gillies, a spokesman for Volkswagen Group of America.
Honda North America is not selling EVs in the United States at this time, spokeswoman Lynn Seely said, but “expects to re-enter the EV market early next year.”
Source and USA Today article
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