The New EV Tax Credit Won’t Cover All Teslas and Other Cars. How It Will Work.

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The Inflation Reduction Act should be law any day now. That will make electric vehicles cheaper for U.S. buyers. It won’t, however, make some of the most popular EVs cheaper.

The law should give the EV industry a boost. Still, not every

Tesla

(ticker: TSLA), or

Tesla

buyer, will qualify for a tax credit.

The devil is always in the details. And there is a lot of nuance in the 700-plus page bill which President Biden is expected to sign this week. For starters, to qualify for the $7,500 purchase tax credit electric sedans will have to be priced under $55,000, while SUVs and trucks will need to be less than $80,000.

That means Tesla Model X and S vehicles, which are still some of the top-selling EVs in the U.S., won’t qualify for a credit. Those can both cost more than $100,000. So can the Mercedes EQS, Porsche Taycan and GMC Hummer.

Those vehicles will be priced out of the tax credit. Some more expensive Tesla Model 3 sedans won’t qualify as well. A Model 3 performance trim starts at about $63,000.

But a base-level Model 3 starts at about $47,000. That price will quality for the credit. So will Tesla Model Y vehicles because those should be considered SUVs. A Model Y performance trim starts at about $70,000.

The Y is the best-selling EV in the U.S. The Model 3 is second-best. Roughly 230,000 Y and 3 vehicles were sold in the U.S. in the first half of 2022. That’s more than double the next 10 top-selling EVs combined.

EV price isn’t the only qualifier. In addition to price, final assembly needs to be in North America. That should exclude EVs manufactured by

Hyundai Motor

(005380.Korea),

Kia

( 000270.Korea), Audi and

Polestar Automotive

(PSNY). Those firms assemble EVs in Asia and Europe.

Overall, it looks as if about half of the bestselling EVs in the U.S. will qualify for the credits. Of course, companies will adjust pricing and change where cars are manufactured to make sure they aren’t disadvantaged in the marketplace.

The last major restriction on EV tax credits is related to personal income. Household income for joint filers needs to be below $300,000. Head of household income needs to be below $225,000. For an individual filer, the threshold is $150,000.

While it might be a little complicated to sort through the details, a lot of EVs are about to get a little more affordable.

Tesla stock has risen about 9% since Sen. Chuck Schumer and Joe Manchin announced in late July compromises that became the Inflation Reduction Act.

Ford Motor

(F) and

General Motors

(GM) shares have gained about 23% and 14%, respectively, over the same span. The

S&P 500
and

Dow Jones Industrial Average
have gained 6% and 5%, respectively.

Write to Al Root at [email protected]