With the new stipulations for electric vehicle (EV) tax credits, leasing a new EV might be a better option than buying.
- Currently, 39 of the 91 EVs on the market are eligible for the full $7,500 tax credit, according to the Alliance for Automotive Innovation.
- When President Joe Biden’s new tax credit rules go into effect on April 18, the number of eligible vehicles will shrink considerably, with some cars being eligible for partial credits and others not being eligible for any credit at all.
- Although many vehicles are losing the credits, the new rules detail that if buyers lease the vehicle rather than buying the vehicle will still be eligible for the full tax break, according to Axios.
Why it’s news
To boost EV production in the U.S. and decrease reliance on China, the Biden administration passed the Inflation Reduction Act, which provides up to $7,500 in tax credits for EVs primarily produced in America.
Transportation accounts for nearly 30% of American emissions. To eliminate that number, the U.S. is pushing for EV adoption, but many Americans have stated that the high price of EVs scares them from switching.
More than 50% of Americans say affordability is their primary concern for EVs, and 70% say they expect to pay less than $50,000 for their next car, according to a Deloitte study.
Introducing the Inflation Reduction Act lowers the EV price for Americans and helps boost internal EV production as more manufacturers have begun building American factories to meet the tax credit restrictions.
There was a large number of vehicles that initially qualified for the credit, but now with the new stipulations, many vehicles do not fall under the proper categories to receive credit.
Previously the vehicles and batteries had to be mainly manufactured in the U.S., but the new rules state that at least 50% of the components in an EV battery must be made in North America. And 40% of the minerals used to make the batteries, which often contain nickel, manganese, and cobalt, must come from domestic sources or from countries that have trade agreements with the U.S., according to The New York Times.
The administration hopes the new rules will further reduce America’s reliance on China and other countries while boosting domestic manufacturing.
Although the new tax credit rules are making many vehicles ineligible, buyers have found a way to bypass the rules—leasing.
Under the new rules, leased vehicles still qualify for the tax breaks as “commercial” vehicles. The tax credit for leased vehicles goes to the owner: the bank. As long as they apply the savings toward the lease terms, the consumer gets a lower monthly payment courtesy of Uncle Sam, according to an Axios report.
The new leasing option has led many companies’ leasing numbers to grow, including Hyundai and Kia. Around 30% of Hyundai and Kia’s electric models are now leased, up from 6% before.
“Before the IRA, our vehicles were leaders in the segment. After the IRA, the [market share] penetration dropped by about 3 points. That’s a huge, huge impact,” says Hyundai Motor Co. global president Jose Munoz.
Though EV leasing allows consumers to still get the tax credit, it is not the best option for everyone. Some buyers would rather bypass the credit to avoid interest fees, while others will pay it off over time.