The Infrastructure Bill and EV Credit: Everything You Need To Know
Photo by CHUTTERSNAP on Unsplash
If new federal regulations come into force as intended, America’s future highways and roads will be much friendlier for electric vehicles (EVs). The Infrastructure Investment and Jobs Act, dubbed the ILJA or Infrastructure Bill, was signed into law in November 2021. And the Inflation Reduction Act became official in August 2022. Both efforts include financial support to accelerate EV adoption in the U.S. So, let’s dive into the infrastructure bill EV credits stemming from these new statutes.
America’s EV Landscape
Before getting into the specifics of the infrastructure bill EV credits, let’s explore where the country stands now regarding electric vehicles. According to the Institute for Energy Research, about 9% of the cars sold globally in 2021 were EVs, with half this amount making up U.S. sales for the same period. While some markets (like China) have access to inexpensive EVs, most gasless vehicles in the U.S. are pricier Tesla models. The Inflation Reduction Act reformulates EV tax credits to make electric cars more affordable. We’ll expand on this later.
In addition to a lack of more affordable EV choices, a limited amount of public charging stations is another deterrent to an EV purchase. The Infrastructure Bill hopes to remedy that by funding the build-out of 500,000 charging hubs. According to a 2021 Axios article, there should be one charger for every 10 to 15 EVs. Let’s see how this formula plays out in real life.
California recently voted to ban the sale of internal combustion engine vehicles by 2035 and further mandated that 35% of all new car sales must be zero-emission vehicles by 2026. So, clearly, the Golden State is beating a path to an all-electric future. According to government data, 16.1 million light-duty cars are registered in the state (this is separate from the 12.7 light-duty trucks, SUVs, and vans on California roads).
If half of the state’s light-duty cars are replaced with EVs by 2035, these drivers will need at least about 537,000 charging stations. The U.S. Department of Energy reports that California has about 14,600 EV charging stations. That means more than 522,000 recharge hubs need to be built before the ban becomes effective. That works out to a requirement for more than 100 charging stations to come online every day for the next dozen years. And that’s just in California.
In other words, there’s a lot of work ahead to make the transition to EVs smooth. So, let’s review how infrastructure bill EV credits work.
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Looking at the Infrastructure Bill
Most of the $1.2 trillion Infrastructure Bill involved highway improvements, public transportation upgrades, expanded internet access, and boosts to ports and waterways. A small portion of this, $7.5 billion, was earmarked for improving the EV charging situation.
Two-thirds of these funds are set aside for the individual states to administer in pursuit of broadening the country’s EV charging network to at least 500,000 hubs. The remainder targets underserved communities (such as inner-city or rural areas) that would ordinarily be bypassed by commercial EV charging providers.
The Biden Administration aims to see half of the nation’s 105 million automobiles bypass the internal combustion engine by 2030. That’s in contrast to the 30% EV market share predicted by some industry analysts. In a best-case scenario, 52.5 million EVs will need 3.5 million chargers.
According to Statista, the U.S. currently has about 46,000 chargers (with approximately 113,00 outlets). Even the 500,000 chargers called for in the Infrastructure Bill leaves a shortfall that must be made up for by private and commercial efforts.
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Understanding the Inflation Reduction Act and EV Tax Credits
Infrastructure bill EV credits really come from the federal government’s tax credit program that was reworked under the Inflation Reduction Act. Previously, the credit (up to $7,500) was available for all-electric and plug-in hybrid vehicles (PHEVs) subject to a 200,000-unit production cap. Tesla and General Motors were the first automakers to reach this limit and subsequently had to sell EVs without the tax credit benefit.
Further, under the old program, the credit was only applicable to taxpayers who owed money to the federal government; it wasn’t a rebate or deduction taken against the vehicle’s selling price. But, the Inflation Reduction Act massively changed things, for better or worse, depending on your point of view.
Here’s an overview of how the new EV tax credit program works. However, remember that the government is just releasing guidelines to the public and automotive retailers, so these factors are subject to change and update. Some of the provisions become effective on January 1, 2023, and some consumers who’ve contracted to purchase an EV but haven’t yet taken delivery may fall under the old rules.
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Here’s the most recent information from the Internal Revenue Service and the U.S. Department of Energy.
- Buyers of qualifying new EVs and plug-in hybrids can claim the tax credit as a rebate (or price reduction) at the time of the sale.
- The tax rebate only applies to buyers who fall within specific income limits. Individual buyers with a modified adjusted gross income below $150,000 or $300,000 for joint return filers (head of household filers are capped at $225,000) are eligible.
- Qualifying vehicles are now subject to a maximum MSRP of $55,000 for passenger cars and $80,000 for light trucks (which includes SUVs and vans).
- There are also requirements that EVs and PHEVs be manufactured in North America. This knocks many once-qualifying vehicles (about 70% of those in the category) off the tax credit eligibility list. Check here for the current roster of qualified models.
- A tax rebate is now available on used EVs, which wasn’t applicable under the old rules. Buyers can enjoy a credit of $4,000 or up to 30% of the selling price, whichever is less. However, the selling price can’t exceed $25,000.
- While not an issue at the moment, qualifying EVs will be subject to battery content thresholds requiring a specific percentage of key elements coming from the U.S. or approved nations. By 2024, 40% of battery components must be sourced from the U.S. (or authorized countries). This gradually rises to 100% by 2029.
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