New EV tax credits raise fear of a ‘messy scenario’ for car dealers

WASHINGTON — With the transition to a new, tougher-to-meet — and “incredibly confusing,” as one dealer put it — tax credit for electric vehicles starting this week, some U.S. auto retailers are left scratching their heads as they wait for more guidance from automakers and the federal government.

President Joe Biden on Tuesday signed the Inflation Reduction Act into law, triggering a shift from the old $7,500 EV tax credit to a new, more complicated one designed to incentivize domestic EV production, reduce reliance on foreign supply chains and prevent wealthy buyers from getting a discount.

As of the bill’s signing, eligible EVs must be assembled in North America. New restrictions on sticker price, buyer income and battery component and critical mineral sourcing take effect Jan. 1.

While automakers consider reshaping their EV supply chains to meet the increasingly stringent sourcing rules, dealers — some remaining hopeful, but many discouraged by the credit’s arduous constraints — are unsure of how the new credit will work in their showrooms and are concerned by how the complex eligibility requirements will affect their customer relationships.

“It just creates a lot of confusion that we have to try to explain when it should have just been simple and straightforward,” said Cody Lusk, CEO of the American International Automobile Dealers Association.

Lusk, whose group represents more than 9,000 international nameplate dealers in the U.S., said few vehicles will qualify for the credit through the end of the year — and dealers are going to be tasked with explaining the eligibility nuances to customers.

“This creates a messy scenario on the showroom [floor], for dealers and customers, because customers think that this is going to be provided to them by the federal government,” he told Automotive News. “In reality, it isn’t going to be for a while — if at all.”

To be sure, the Biden administration said about 20 models meet the North American final assembly requirement and therefore still qualify for EV tax credits of up to $7,500 until the end of the year. However, none will be eligible for the full credit when additional sourcing rules take effect next year, according to the Alliance for Automotive Innovation, an industry trade group that represents most major automakers in the U.S.

The National Automobile Dealers Association said it supports several of the new provisions in the Inflation Reduction Act, including an expansion of the tax credit to allow fuel cell vehicles to qualify and the elimination of the 200,000-vehicle-per-manufacturer cap.

Under the new law, consumers can claim the EV tax credit on the purchasing year’s tax returns when filed or, starting in 2024, the credit can be transferred to the dealer at the point of sale.

Automakers will provide the VINs and their related eligibility, “allowing dealers to explain that vehicle eligibility was determined by Congress,” NADA said in a statement. “As with any revamped program, there will be a transitional period in the short term.”

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