Cars assembled outside NA may qualify for EV tax credit, per new IRS note
The US Treasury has released new guidelines on the electric vehicle tax credit in the Inflation Reduction Act, which seem to suggest that leased vehicles can qualify for the EV tax credit even if they were assembled outside of North America, Reuters reports.
The Inflation Reduction Act significantly changed the way the EV tax credit works, and among those changes was a requirement that cars undergo final assembly in North America in order to qualify. The intent of this section is to bring EV manufacturing to the US in order to give the country a leg up in the future of the auto industry.
The provision received sharp pushback from foreign automakers, particularly Hyundai and Kia, that currently sell more electric cars in the US than any other foreign automaker.
Both companies are establishing battery and car factories in the US, but those won’t be open for a few years, leaving them in the lurch for credits for the time being.
But today, the IRS released a fact sheet of frequently asked questions about the tax credits, which suggests that foreign-made EVs may qualify for tax credits through the commercial vehicle section of the law.
The law includes two major sections detailing tax credits. The standard credit is covered under section 30D, while the commercial vehicle credit is covered under section 45W. When describing section 30D, the IRS mentions that qualifying vehicles can’t be acquired for resale purposes, must be made by a qualified manufacturer, must be 4-wheeled electric vehicles driven by a >7kWh battery, must be under 14k pounds GVWR, and must be assembled in North America.
But section 45W reads thusly:
Q2. What is a “qualified commercial clean vehicle”? (added December 29, 2022)
A2. A “qualified commercial clean vehicle” is defined as any vehicle of a character subject to the allowance for depreciation that:
- Is made by a qualified manufacturer,
- Is acquired for use or lease by the taxpayer and not for resale,
- Is treated as a motor vehicle for purposes of title II of the Clean Air Act and is manufactured primarily for use on public streets, roads, and highways (not including a vehicle operated exclusively on a rail or rails), or is mobile machinery, as defined in § 4053(8) of the Code, and
- Is propelled to a significant extent by an electric motor which draws electricity from a battery that has a capacity of not less than 15 kilowatt hours (or, in the case of a vehicle that has a gross vehicle weight rating of less than 14,000 pounds, 7 kilowatt hours) and is capable of being recharged from an external source of electricity, or satisfies the requirements under § 30B(b)(3)(A) and (B) of the Code for being a new qualified fuel cell motor vehicle.
Note, 45W does not mention North American final assembly.
Later in the same fact sheet, another question comes up:
Q5. Is a taxpayer that leases clean vehicles to customers as its business eligible to claim the qualified commercial clean vehicle credit? (added December 29, 2022)
A5. Whether a taxpayer can claim the qualified commercial clean vehicle credit in its business depends on who is the owner of the vehicle for federal income tax purposes. The owner of the vehicle is determined based on whether the lease is respected as a lease or recharacterized as a sale for federal income tax purposes.Q6. What factors are used to determine if a transaction is a “lease” for tax purposes? (added December 29, 2022)
A6. Based on longstanding tax principles, the determination whether a transaction constitutes a sale or a lease of a vehicle for tax purposes is a question of fact. Features of a vehicle lease agreement that would make it more likely to be recharacterized as a sale of the vehicle for tax purposes include, but are not limited to:
- A lease term that covers more than 80% to 90% of the economic useful life of the vehicle
- A bargain purchase option at the end of the lease term (that is, the ability to purchase the vehicle at less than its fair market value at the end of the term) or other terms/provisions in the lease that economically compel the lessee to acquire the vehicle at the end of the lease term
- Terms that result in the lessor transferring ownership risk to the lessee, for example, a terminal rental adjustment clause (TRAC) provision that requires the lessee to pay the difference between the actual and expected value of the vehicle at the end of the lease.
In short, for a leased vehicle, the commercial tax credit can be taken by the lessor, regardless of whether the vehicle was assembled in the US. This means dealerships can get $7,500 in tax credits for each leased EV.
This credit, then, could be passed on to the consumer in the form of reduced lease payments, as the dealership will effectively recognize an additional $7,500 in revenue from the lease of that vehicle.
The “old” tax credit worked similarly on leased vehicles, which was one way that low-income taxpayers could get around the limitation that the credit was not refundable, which means that anyone with less than $7,500 in federal tax liability couldn’t benefit from the full credit.
This is also why there have been many EV lease deals in the past, with vehicles like the Nissan Leaf and Fiat 500e, each with MSRP around $30k, leasing for $99/mo or less (as opposed to the expected approximate $300 per month for a $30k car), as dealers could recognize tax credits to effectively reduce the price of those vehicles. Those deals no longer exist in this production-constrained and high-demand EV sales environment, though similar deals may return if the market ever flattens out.
US Senator Joe Manchin responded to this announcement, calling this a “dangerous interpretation” and asked the Treasury to pause implementation of the EV tax credit, claiming that domestic manufacturing is a primary intent of the law:
Manchin was the crucial 50th vote to get the Inflation Reduction Act passed in the Senate.
Electrek’s Take
Well, it does seem like this is a generous interpretation. In my reading of the law, I’m not sure I would interpret it that way to the point where it took me a while to understand this point of view, and I didn’t want to write this article immediately because I thought surely Reuters had gotten something wrong in their reporting.
However, the implementation of the law really was unfair to foreign automakers, who were not given enough time to prepare for it. The fact that those credits were stripped with only days’ notice, leading to a scramble to figure out how to secure credits for manufacturers and consumers, not only created confusion but also resulted in some of the best vehicles on the road today (like the excellent Hyundai Ioniq 5) being left out of tax credit availability.
It was also unfair to EV buyers because many were left out of credits due to the arcane nature of these changes. It has taken us a lot of time to understand them, and even communicating those changes to our readers can get complicated, as you can see above.
I even got an email from someone this week pointing to the IRS’ Qualified Clean Vehicle page, which until today, had not been updated with information from the Inflation Reduction Act. It still stated that the Hyundai Ioniq 5 qualified for tax credits, which was true before August 16 but not true afterward. The buyer wondered if they qualified for tax credits, and I had to break the news that they didn’t. Now, we find out that if they had simply leased the vehicle, they could have gotten the credit, which is a pretty unfortunate circumstance.
So the implementation of this law has been quite rocky. But at the time it passed, I stated many times that I hoped and thought that the IRS would eventually announce lenient guidance on its implementation to make up for the unfairness of how it was implemented.
Today, they’ve done so. While I think the interpretation is very generous based on the text of the law, I do also think that it is fair based on the difficult situation regarding its implementation. Unfortunately, there was a lot of confusion and some people got left out in the interim, but going forward, allowing more vehicles to claim the credit can only be good for EV adoption.
We’ll be updating our EV tax credit guide with any new changes as they come in, so check back for the latest news.
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In a joint statement, French and German economists have called on governments to adopt “a common approach” to decarbonize European trucking fleets – and they’re calling for a focus on fully electric trucks, not hydrogen.
France and Germany are the two largest economies in the EU, and they share similar challenges when it comes to freight decarbonization. The two countries also share a border, and the traffic between the two nations generates major cross-border flows that create common externalities between the two countries.
At the same time, the EU’s transport sector has struggled to reduce emissions at the same rate as other industries – and road freight in particular is a major contributor to harmful carbon emissions issue due to that industry’s heavy reliance on diesel-powered trucks.
And for once, it seems like rail isn’t a viable option:
While rail remains competitive mainly for heavy, homogeneous goods over long distances. Most freight in Europe is indeed transported over distances of less than 200 km and involves consignment weights of up to 30 tonnes (GCEE, 2024) In most such cases, transportation by rail instead of truck is not possible or not competitive. Moreover, taking into account the goods currently transported in intermodal transport units over distances of more than 300 km, the modal shift potential from road to rail would be only 6% in Germany and less than 2% in France.
That leaves trucks – and, while numerous government incentives currently exist to promote the parallel development of both hydrogen and battery electric vehicle infrastructures, the study is clear in picking a winner.
“Policies should focus on battery-electric trucks (BET) as these represent the most mature and market-ready technology for road freight transport,” reads the the FGCEE statement. “Hence, to ramp-up usage of BET public funding should be used to accelerate the roll-out of fast-charging networks along major corridors and in private depots.”
The appeal was signed by the co-chair of the advisory body on the German side is the chairwoman of the German Council of Economic Experts, Monika Schnitzer. Camille Landais co-chairs the French side. On the German side, the appeal was signed by four of the five experts; Nuremberg-based energy economist Veronika Grimm (who also sits on the National Hydrogen Council, which is committed to promoting H2 trucks and filling stations) did not sign.
You can read an English version of the CAE FGCEE joint statement here.
Electrek’s Take
MAN Trucks’ CEO famously said that it was “impossible” for hydrogen to compete with BEVs, and even committed to building 200 hydrogen-powered semi truck to prove out that hypothesis.
He’s not alone. MAN’s board member for research and development, Frederik Zohm, said that the company is the one saying hydrogen still has years to go. “(MAN) continues to research fuel cell technology based on battery electrics,” he said, in a statement quoted by Hydrogen Insight, before another board member added that, “we (MAN) expect that, in the future, we will be able to best serve the vast majority of our customers’ transport applications with battery-electric trucks.”
With companies like Volvo and Renault and now Mercedes racking up millions of miles on their respective battery electric semi truck fleets, it’s no longer even close. EV is the way.
SOURCE | IMAGES: CAE FGCEE; via Electrive.
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GE Vernova has produced over half the turbines needed for SunZia Wind, which will be the largest wind farm in the Western Hemisphere when it comes online in 2026.
GE Vernova has manufactured enough turbines at its Pensacola, Florida, factory to supply over 1.2 gigawatts (GW) of the turbines needed for the $5 billion, 2.4 GW SunZia Wind, a project milestone. The wind farm will be sited in Lincoln, Torrance, and San Miguel counties in New Mexico.
At a ribbon-cutting event for Pensacola’s new customer experience center, GE Vernova CEO Scott Strazik noted that since 2023, the company has invested around $70 million in the Pensacola factory.
The Pensacola investments are part of the announcement GE Vernova made in January that it will invest nearly $600 million in its US factories and facilities over the next two years to help meet the surging electricity demands globally. GE Vernova says it’s expecting its investments to create more than 1,500 new US jobs.
Vic Abate, CEO of GE Vernova Wind, said, “Our dedicated employees in Pensacola are working to address increasing energy demands for the US. The workhorse turbines manufactured at this world-class factory are engineered for reliability and scalability, ensuring our customers can meet growing energy demand.”
SunZia Wind and Transmission will create US history’s largest clean energy infrastructure project.
Read more: The largest clean energy project in US history closes $11B, starts full construction
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