As of Jan. 1, some buyers can claim up to $7,500 in federal tax credits when they purchase a new electric vehicle that costs under $55,000.
U.S.-based auto manufacturers Tesla and Ford recently announced significant reductions in the prices they charge for electric vehicles, putting those prices at a level that will allow buyers to take advantage of tax credits that were signed into law by President Joe Biden and became available in January 2023.
Beginning on Jan. 1, some consumers can claim up to $7,500 in federal tax credits when they purchase a new electric vehicle that costs under $55,000, depending on how they intend to use the vehicle and what their income is. The credits are a provision of the Inflation Reduction Act, which Biden signed into law on Aug. 16, 2022 after it passed in Congress over unified Republican opposition.
"On my watch, the great American road trip is going to be fully electrified," Biden tweeted on Jan. 30. "And now, through a tax credit, you can get up to $7,500 on a new electric vehicle."
Tesla announced on Jan. 13 that the prices for many of its electric vehicles would be cut by as much as 20%. Before the cuts were announced, the company's Model 3 Performance car was listed for sale for $63,000. After the announcement, the price is listed at a tax-credit-eligible $54,000. Similarly, the price for a Tesla Model Y has been cut from $66,000, which would not have qualified, to $53,000.
On Jan. 30, Ford announced increased production and a price cut for its Mustang Mach-E electric vehicle. According to CNBC, Marin Gjaja, the chief customer officer at Ford's electric division, indicated in a briefing with reporters that the change had been made in response to Tesla's price reductions and to make more models of the Mach-E eligible for the new tax credits.
"As we look and want to stay competitive in the marketplace, we're having to respond," Gjaja said.
Autoweek reported that General Motors CEO Mary Barra said during a Jan. 31 earnings call with investors and the media that the company did not plan to cut prices in response to Tesla's and Ford's actions, but that much of GM's growing line of electric vehicles already qualify for the credits. GM said that it expects to earn a $300 million "tailwind" to its earnings as customers use the credit to purchase its cars.
In addition to the immediate benefits for consumers under the tax credits, recently released research shows that other tax credits in the new law may be far more consequential than originally forecast.
A provision of the Inflation Reduction Act gives tax credits to companies engaged in the domestic manufacture of batteries for electric vehicles. The Congressional Budget Office previously estimated that those credits would amount to $30.6 billion over the next 10 years.
But following recent decisions by automobile industry companies to open more battery production plants, that estimate is being significantly increased. Benchmark Mineral Intelligence, which specializes in reports on the battery cell industry, projects that the credits will reach $136 billion over the next decade.
Consumers could see further decreases in electric vehicle prices if manufacturers choose to pass on the savings they are seeing from battery production credits. Costs have often been cited as a significant barrier to wider electric vehicle adoption.
The Biden administration has touted the tax credits as part of a strategy to increase the use of clean energy to fight climate change and create jobs, often union jobs, that will be involved in the transition to more environmentally friendly sources of power.
Biden has said that his long-term goal is to increase sales of electric vehicles so that the United States by 2030 will be closer to the zero-emissions goals set down in the Paris climate accord. Biden brought the country back into the accord in 2021, after former President Donald Trump ordered that it be withdrawn from the agreement in 2019.
Published with permission of The American Independent Foundation.
