Buying an electric car is about to be a hassle, thanks to stricter tax breaks

Volkswagen “cannot” guarantee that its ID.4 compact electric SUV will be eligible for new electric vehicle tax credits that are set to take effect after President Joe Biden signs the Inflation Cut Act. The automaker isn’t alone in its confusion.

The auto industry is scrambling to adapt to new rules that require assembly of electric vehicles in North America, using parts and supplies sourced locally or from official business partners, until customers qualify for a $7,500 tax credit. Most electric vehicles contain batteries sourced from China, which means that the new rules are written in such a way that the vast majority of electric vehicles on the road today are effectively qualified.

In an email to customers, Volkswagen says it “expects but does not guarantee” that model year 2022 and 2023 ID.4s will meet the new stringent requirements. Given the uncertainty, the automaker is urging its customers to enter into a “binding written contract to purchase” as their best chance of qualifying for tax credits.

Volkswagen is the latest car company to push contract binding on reservations in the months before the new tax breaks take effect. BMW, Audi, Rivian and others are also telling customers to sign purchase agreements in order to qualify for the legacy tax credit, which has no rules requiring parts or assembly in North America, to me Electric.

That’s because the Inflation Control Act includes a “transition rule” under which any customer who had a “binding written contract to purchase” a new electric car before the law went into effect could elect to get the old tax credit, even if the car was delivered after the law was enacted.

Before these changes were announced, customers interested in purchasing an electric vehicle could put some money — usually a few hundred dollars — toward a refundable deposit on an electric vehicle. But the reservations weren’t explicitly covered under the bill’s language, so the automakers are encouraging customers to sign binding contracts in order to improve their chances of qualifying for the tax credit.

According to Alliance for Automotive Innovation, the auto industry’s major lobbying group, there are currently 72 EV models available for purchase in the United States, including battery electric vehicles, plug-in hybrids and fuel cell electric vehicles. Of these forms, 70 percent are ineligible for the tax credit when the bill is passed. And by 2029, when the additional sourcing requirements come into effect, none of them will be eligible for full credit.

The National Automobile Dealers Association says it agrees with the auto industry’s reading of the bill. In a notice to its members, the group said it encourages dealers to reach out to OEMs (Original Equipment Manufacturers) “to make sure electric vehicles will not be eligible for credit after the president signs this new requirement into law.”

customer demand For electric cars, it’s the highest ever, but the uncertainty surrounding the new tax credits could dampen that momentum, especially if customers find themselves scrambling to sign purchase agreements for vehicles they’re not even sure they want to buy.

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