August has been a big month for the environment. At the national level, President Joe Biden signed the Inflation Reduction Act, which allocates over $360 billion to help fight climate change. And more locally, Gov. Charlie Baker signed a sweeping state climate and clean energy bill into law.
Both laws cover a lot of ground. But one notable commonality is the emphasis on getting more electric vehicles on the road. To help make this happen, the laws establish tax credits or rebates for consumers — you don’t have to choose one, you can take advantage of both — as well as mandates and incentives for building charging infrastructure.
So whether you’re already in the market for an EV, or just starting to think about making the switch, here’s what you should know about how these two new laws can help.
Prior to Biden signing this law, the federal government already offered a $7,500 federal tax credit for buying certain EVs. But the Inflation Reduction Act makes some big changes to how the program works.
Lifts the manufacturer cap
Historically, the federal tax credit was only available for the first 200,000 cars sold by a specific manufacturer. This cap disappears in 2023, meaning you will once again be eligible for tax credits if you buy a Tesla, GM or Toyota electric vehicle.
Makes credits available at the point of sale
Well, sort of. In the past, you had to pay the full sticker price of the vehicle and then fill out a special form with your taxes to get a reimbursement. But beginning in 2024, you can directly transfer the tax credit to a car dealer. This allows the dealer to claim the tax credit and should enable them to knock $7,500 off the price of your car.
This one change could go a long way toward helping more people afford to make the switch to an EV, says Joel Levin, executive director of the nonprofit Plug In America.
“The goal of these tax credits has always been to equalize the value of EVs with gas cars. So already today, if you take an electric vehicle and a gas car and you look at the whole cost of ownership — including maintenance and fuel — because gas is so expensive, EVs for the exact equivalent car are cheaper now,” he says. “But that’s not how people buy cars. People look at the cost of the car upfront.”
So if people can get the value of the tax credit at the dealership and effectively knock off a chunk of the down payment, that should go a long way toward making new and used EVs more affordable.
The federal law also creates a workaround for a different equity issue that arose in the past. Because you could only get the tax credit if you owe the government money at the end of the year, people who had no tax liability got nothing. In general, the people with low to zero tax liability tend to be lower income, meaning this tax credit disproportionately benefited the wealthy. By assigning the credit to a dealer, your individual tax liability is no longer a barrier.
Makes credits available for used EVs
For the first time, the federal government will now offer a tax credit for buying a pre-owned electric vehicle, which experts say could go a long way toward helping lower and middle income people afford EVs.
To qualify, the used car must meet two standards: it needs to come from a dealership and its value cannot exceed $25,000. What’s more, a pre-owned EV is only eligible for the credit the first time it is resold. (This will be tracked by the VIN number on the car.)
The tax credit is either $4,000 or 30% of the sticker price of the car, whichever is lower, and like with new EVs, it can be transferred to a dealer so the buyer can recoup the savings at the point of purchase.
To help ensure the incentives go to those who need financial help the most and spur manufacturing, the tax credits available in the Inflation Reduction Act come with a lot of other stipulations.
Beginning in 2023, you can only qualify for the new or used EV tax credits if you make no more than $150,000 a year — or $300,000 if you file jointly with a partner.
Beginning in 2023, tax credits will only be available for:
- Smaller cars and sedans costing no more than $55,000
- SUVs, trucks and vans costing no more than $80,000
- Used vehicles costing no more than $25,000
For new vehicles, the maximum cost is based on the manufacturer’s suggested retail price.
The IRA aims to get more EVs on the road — but not just any EVs. The goal is to build up a domestic supply chain for American-made EVs. To that end, the law establishes three new manufacturing requirements that car makers must meet if they want their EVs to be eligible for federal tax credits.
Made in North America
You can only get a tax credit for a new car if its final assembly was done in the U.S., Canada or Mexico. This requirement — which does not apply to used EVs — went into effect as soon as Biden signed the law.
The source of battery minerals
The law sets out gradually increasing standards for the percentage of battery minerals that must be extracted or processed domestically. Minerals that come from a country the U.S. has a free trade agreement with or that are recycled in North America count too. (More below on the challenges of determining this.)
To qualify, 40% of battery materials in cars made before 2024 must meet this standard. This rises to 50% for cars made in 2024 and continues to rise until it hits 80% in 2027.
The law also contains language stating qualifying vehicles produced after 2024 can’t have batteries containing critical minerals mined, processed or recycled in a “foreign entity of concern.” As of now, there is no official list of countries, but China, which is where the majority of batteries are currently made, is widely expected to be on it.
Other battery components
The law also establishes minimum standards for where battery components — everything from wires to the metal paneling — are manufactured or assembled.
Cars placed in service in 2022 or 2023 need at least 50% of the battery parts — as measured by the value of these components — to be manufactured or assembled in North America. This percentage rises to 60% for cars made in 2024 and 2025 and then climbs slowly to 100% by 2029.
So what does this all mean for you?
Assuming you meet the income requirements and the car you want to buy meets the cost requirements, you can only get the full $7,500 tax credit if your car also meets the three manufacturing requirements. However, if your car is assembled in North America but only meets one of the battery requirements, you can qualify for $3,750, or half of the tax credit. (No one said this was simple.)
Is any of this feasible?
To be blunt, there’s a lot of confusion about what cars will qualify next year when the system goes into effect, and a lot of concern about how car manufacturers will meet the strict assembly requirements in the near future. Most EV batteries are currently sourced from foreign materials and assembled in China, and complying with the manufacturing rules is not an overnight process. (And to be clear, you can buy an EV that doesn’t qualify for the tax credit, you just won’t get money back.)
The mineral and battery component requirements raise three important questions, says Levin of Plug In America: Are these things possible to calculate? Are they possible to achieve? And are they possible to enforce?
“If you’re GM or Ford and you buy parts from many, many different suppliers, and many of [those suppliers] buy their parts from other suppliers — you have to go through and find out where every one of those parts was manufactured and where the minerals came from and where those minerals were processed.” he says. “I have a feeling that a lot of the manufacturers today don’t even know whether their vehicles would comply or not. And they’re probably all scrambling to do that supply chain analysis.”
As for whether these standards are possible to meet, “I think the simple answer is no one knows,” he says. Though in general, he’s heard from EV manufacturers that the battery component part may be easier to achieve than the mineral sourcing requirement.
Processing the critical minerals used in most EV batteries is messy work, he says. “And to be able to set that up in the U.S. in a way that you can get permits and meet various environmental and safety standards — it’s not something you can do in a few months.”
In a statement released earlier this month, John Bozzella, president and CEO of the Alliance for Automotive Innovation, also questioned the logic behind some of these standards. He went so far as to posit that very few — if any — electric vehicles currently for sale in the U.S. will meet these requirements in the near term.
And then when it comes to enforcement, well, Levin says that remains to be seen.
Add all of these new stipulations to the existing EV shortages, and the likely outcome is a headache in the near future for prospective buyers. But in a couple of years, experts seem to agree that the law could make EVs more affordable for people and provide a boon to domestic manufacturing.
For more information about what cars qualify for the new tax credits and how you can redeem the money, this page on the U.S. Treasury Department website is helpful.
The good news is that the benefits in the Massachusetts climate law are a lot more straightforward. As outlined in this explainer, the new state climate law can help you afford, find and charge an electric vehicle.
Help affording an EV
Beginning in 2035, Massachusetts will ban the sale of new internal combustion engine vehicles, meaning many more people are going to be in the market for an EV. (Used fossil fuel powered cars are exempt from this sales ban.)
While some EVs are reasonably priced, many models aren’t cheap. To help residents afford to go electric, the state is offering the following rebates and, importantly, making them available at the point of sale:
- $3,500 for a new or used EV that costs no more than $55,000
- An extra $1000 if you turn in a combustion engine vehicle with your EV purchase
- An extra $1,500 for lower income residents
There are existing incentives for light-duty, medium-duty and heavy-duty trucks, buses and vans, but they don’t change much in the new law.
Help finding an EV
As noted above, it’s hard to find electric vehicles right now because of global supply chain issues. While there’s very little Massachusetts can do to remedy this, lawmakers did require that the state build a website listing available new and used EVs at dealerships. It’s unclear when this will be up and running, but it should, in theory, make the search for a car a bit easier in the future.
Making charging easier
The Massachusetts Clean Energy and Climate Plan released earlier this year called for 15,000 public chargers in the state by 2025 and 75,000 public chargers by 2030. Building out this infrastructure is critical for people who don’t have designated parking spots or driveways — i.e., many people who live in urban areas — as well as for those concerned about their ability to drive an EV long distances.
But planning exactly where these chargers should go and what level of charge they should deliver isn’t easy. And prior to the new climate law, there was no single state entity figuring this out. The law creates an interagency council to oversee this buildout and make sure it’s done in an equitable and accessible way.
To help get things started, the law requires the state Department of Transportation to install fast chargers at all Mass Pike service plazas, five commuter rail stations, five subway stations, and at least one ferry terminal. The department will also need to collect and report data about issues with charging infrastructure.
What this means for you
Unlike the federal tax credits, the Massachusetts rebates are not tied to any specific manufacturing requirements. So if you buy an EV in the next year or two and don’t qualify for the federal credits, you might be able to at least get some money back from the state, assuming your car meets the criteria.
“Big picture, [the climate law] should make it easier for folks to get into an electric vehicle, specifically a battery electric vehicle,” says Anna Vanderspek, director of the Electric Vehicle Program at the Green Energy Consumers Alliance. “Our hope is that it will make going electric feasible for lots more people and kind of give us the kick start we need to get on the road to the 900,000 EVs that we need by 2030.”