Confusing electric vehicle tax rules may be cutting into demand in the U.S.
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The electric vehicle industry in the U.S. is still in a state of flux after new rule changes dramatically changed which vehicles qualify for the full EV tax credit. Ward's Auto noted the new rules mean that consumers view some EV vehicles as suddenly $7,500 more expensive than at the beginning of the year.
The new EV rules have made models built outside the U.S. by European, Asian, and some U.S. automakers ineligible for the full tax credit. In addition to the built-in-America rule, the Inflation Reduction Act also contained rules about the composition of various vehicle components, including the sourcing of the critical minerals used in batteries. Ward's Auto Tyson Jominy noted the rapid rise in EVs to 8% of the total market in Q1 was likely partially spurred by consumers rushing in to buy before the new rules were in place. However, now there are concerns about the impact of tax confusion on EV demand.
"These factors are opaque to shoppers and can also lead to confusion within the retail store. Even vehicles that appear to have the same powertrain can end up on both sides of this rule. For example, the Tesla Model 3 Rear-Drive base trim has more non-compliant critical minerals than the Performance trim. So, within one vehicle line, the Performance trim qualifies its buyers for a $7,500 tax credit, while the base model qualifies its buyers for just half that: $3,750."
Jominy warned the several layers of possible confusion to the tax EV tax rules could also result in higher transaction prices for many EVs. Notably, Tesla (NASDAQ:TSLA) and General Motors (GM) are the two exceptions to the disruption and may end up with extra market share due to the EV tax reset. So far in Q2, electric vehicles have only accounted for 7% of all vehicles sales in the U.S. in what would be a disappointing deceleration if it continues.
Related stocks: Tesla (TSLA), General Motors (GM), Ford (F), Fisker (FSR), Lucid Group (LCID), Rivian Automotive (RIVN), Nissan (OTCPK:NSANY), BMW (OTCPK:BMWYY), Toyota (TM), Hyundai (OTCPK:HYMTF), Stellantis (STLA), Honda (HMC), Volkswagen (OTCPK:VWAGY).
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