Last week, the IRS updated the EV tax credit with new battery sourcing requirements set to go into place on April 17, with the effect of lowering purchase credit amounts for many new EVs.
But since the law defines individual and commercial credits differently, those requirements – along with MSRP and income requirements – can be bypassed on consumer-leased vehicles.
The Inflation Reduction Act changed the way EV tax credits are defined, making them simultaneously more complicated and more restrictive but also increasing their availability to more total vehicles in the long run.
There are a lot of new requirements, including maximum MSRP (which differs for cars and trucks/SUVs), income limits for taxpayers, and new battery requirements. Plus, cars need to be assembled in North America to qualify. This means several vehicles no longer get a tax credit after the changes last August.
The tax credit is also nonrefundable, which means that taxpayers need to make enough money to have $7,500 of tax liability to be reduced, but not enough to be above the income limit. Additionally, taxpayers need to wait until they file their taxes in order to take advantage of the credit, which means they have to front the $7,500 and get it back later. But both of these downsides will be fixed next year when the tax credit is due to become available upfront at the point of sale.
“One simple trick” to bypass tax credit restrictions
But all of these complications can seemingly be avoided with one simple trick! – leasing.
Per an IRS note from December, EVs can avoid the foreign-assembly restriction of the law if they are leased, not purchased. This interpretation was originally pushed for by South Korean automakers who felt jilted by the domestic assembly provisions of the Inflation Reduction Act. Hyundai and Kia have been the best-selling non-American EV brands in the US with their excellent Ioniq 5 and EV6 (built on the E-GMP platform), so these changes threatened to take the wind out of their sails (and sales).
The reason for this is due to two different sections of the law: 30D and 45W. Section 30D deals with individual purchase credits, and 45W deals with commercial credits. One is meant to stimulate personal vehicle purchases, while the other is intended to stimulate large commercial EVs like buses and dump trucks but also smaller vehicles for purchase or lease in commercial fleets.
All of the aforementioned restrictions are only present in section 30D of the law, not section 45W. Commercial vehicles can be over 80k MSRP, they can be assembled outside of NA, their battery sourcing isn’t as controlled, and buyers can make more than $150k income.
The “loophole” comes in due to the IRS’ December interpretation of how leases are categorized. IRS states in their fact sheet (topic G, Q5) that businesses that lease vehicles are allowed to claim the commercial EV tax credit for each leased vehicle. This means that as long as the vehicle fulfills the relatively minor requirements of 45W (and is a “bona fide lease” as laid out in Q6 of the same fact sheet), then a lessor (i.e., a dealership) can file for the $7,500 EV tax credit. This applies regardless of whether the lessee is a business or an individual.
Presumably, then, the lessor would be able to pass along those savings in the form of reduced lease payments.
Some brands already offering $7,500 off leases
So far, this particular workaround has not gotten much press. Since these credits are filed for on the back end by dealerships and don’t really require action from the consumer, it’s up to dealers to notice this and offer lease discounts.
But consumers should still know about these deals, as EVs are often cheaper than their MSRP might suggest. For many years, under the old credit, you’d routinely see an EV with around $30k MSRP leasing for approximately $199 per month.
A few manufacturers have already started offering lease discounts. Hyundai is offering significant discounts on the Hyundai Kona EV and the excellent Hyundai Ioniq 5. Polestar has a “Clean Vehicle Lease Rebate” on the Polestar 2 (which it says will expire May 1, though there is nothing in the law suggesting that will happen), and Lucid offers $7,500 off on leases as well. Tesla’s head of policy recently acknowledged that the law allows for this interpretation, but Tesla hasn’t announced any specific lease discount.
As word gets out about this workaround, we would hope to see more companies offer lease discounts and for EV leasing to perhaps become more prominent, especially among those brands that don’t qualify for the full EV tax credit. For example, the Chevy Bolt EV and Bolt EUV, the Ford Mach-E, E-Transit, Escape PHEV, and Corsair PHEV, and the standard range Tesla Model 3 are all expected to have their credit amounts reduced come April 17.
But for all of these cars, due to the way the commercial tax credit works, it looks like leasing could give access to the full $7,500. It’s just on the dealers to file for it and pass it along to the consumer.
However, given that the EV market is still impacted by high demand and low availability, some brands and dealers may think they don’t need to pass along these savings because they’ll be able to sell or lease cars regardless to a populace that ravenously demands the limited available supply. We’re not seeing those “$199 per month” EV lease deals that we used to see (and which we catalog here on Electrek) because EV demand is just so high right now.
Hopefully, if EV demand starts to normalize, this will be reflected in EV lease prices. Then, we might see some big growth in EV leasing as consumers see that better deals are available.
We noticed this “loophole,” if you want to call it that, a little while ago but thought it was too good to be true. If leasing means the foreign assembly provision could be bypassed, as we learned in the IRS note in December, then why can’t other 30D provisions be worked around?
But this isn’t necessarily solely a positive development. On the one hand, it makes the process much simpler for the consumer since you can just lease any car, and the tax credit gets dealt with by someone else. No need for a fancy flowchart; just go in and get a cheaper lease.
But on the other hand, it also undermines the whole point of the law. The IRA was passed to encourage domestic manufacturing, particularly of green vehicles. And it has done so – the Biden Administration says that $45 billion in EV manufacturing investments have been made since the law was passed, and it looks like there’s more to come.
These boosts in manufacturing are important, because as mentioned above, EV supply lags far behind EV demand, and I believe the best way to accelerate EV adoption is to actually start building them. Knowledge of this workaround could jeopardize the strides we’ve made in EV manufacturing commitments.
If companies can easily get around those domestic assembly provisions with a lease, then that could give them less incentive to accelerate their domestic EV manufacturing plans. US Senator Joe Manchin, who was instrumental in crafting the domestic assembly provisions of the IRA and getting the law passed in the first place, has spoken out against this lenient interpretation of the commercial credit, even calling it a “betrayal.”
That said, leasing makes up a small percentage of the car market (less than one-fifth) and an even smaller percentage of the EV market (about one-tenth). Many consumers just would rather not lease. There are plenty of people who could get away with – and even save lots of money from – not owning a car. But part of the psychological draw of owning a car is the idea of freedom that it gives you, and leases take away some of that freedom – it’s not your car, and you’re not allowed to use it exactly how you want: mileage restrictions, worries about penalties for scratches or dings at lease end, etc.
So there’s still some incentive for manufacturers to announce more car and battery factories since it’s unlikely that leasing will make up a majority of EV sales, even with big incentives. Even when lease deals were rampant, they still didn’t make up a majority of EV sales.
Of course, demand is still much higher than supply. So companies should be announcing car factories and battery factories everywhere all the time. Nobody is ramping up fast enough, so they should all take any excuse to ramp up faster, both due to the market and the ever-important threat of climate change.
So even though everything about these tax credits has been somewhat, let’s say, “inartful” in its implementation, I think, on the whole, we’ve gotten close to an end-point of a law that expands the availability of tax credits to more people, while still also encouraging increased domestic manufacturing and a multipolar EV manufacturing environment. This will have beneficial aspects both for US EV adoption and for the industry in general.
FTC: We use income earning auto affiliate links.More.
Credit where credit is due: in a massive, 32-car multinational independent test, Tesla’s Autopilot ADAS came out on top, the new affordable Tesla turns out to be a corner-cutting Model Y, and one of the company’s original founders compares the Cybertruck to a dumpster. All this and more on today’s episode of Quick Charge!
Today’s episode is brought to you by Retrospec – the makers of sleek, powerful e-bikes and outdoor gear built for everyday adventure! To that end, we’ve got a pair of Retrospec e-bike reviews followed up by a super cute, super affordable new EV from China with nearly 150 miles of range for less than $5,000 USD.
PLUS: listeners can get an extra 10% off by using code ELECTREK10 at retrospec.com!
New episodes of Quick Charge are recorded, usually, Monday through Thursday (most weeks, anyway). We’ll be posting bonus audio content from time to time as well, so be sure to follow and subscribe so you don’t miss a minute of Electrek’s high-voltage daily news.
Got news? Let us know! Drop us a line at tips@electrek.co. You can also rate us on Apple Podcasts and Spotify, or recommend us in Overcast to help more people discover the show.
If you’re considering going solar, it’s always a good idea to get quotes from a few installers. To make sure you find a trusted, reliable solar installer near you that offers competitive pricing, check out EnergySage, a free service that makes it easy for you to go solar. It has hundreds of pre-vetted solar installers competing for your business, ensuring you get high-quality solutions and save 20-30% compared to going it alone. Plus, it’s free to use, and you won’t get sales calls until you select an installer and share your phone number with them.
Your personalized solar quotes are easy to compare online and you’ll get access to unbiased Energy Advisors to help you every step of the way. Get started here.
FTC: We use income earning auto affiliate links.More.
Tesla is again teasing the new Roadster, which is now five years late, as “the last driver’s car” before self-driving takes over.
The chicken or the egg. Is Tesla delaying the Roadster to match the development of self-driving technology, or is it delaying the development of self-driving technology to match the delayed release of the Roadster?
The prototype for the next-generation Tesla Roadster was first unveiled in 2017, and it was initially scheduled to enter production in 2020; however, it has been delayed every year since then.
It was supposed to achieve a range of 620 miles (1,000 km) and accelerate from 0 to 60 mph in 1.9 seconds.
Advertisement – scroll for more content
It has become a sort of running joke, and there are doubts that it will ever come to market despite Tesla’s promise of dozens of free new Roadsters to Tesla owners who participated in its referral program years ago.
Tesla used the promise of free Roadsters to help generate billions of dollars worth of sales, which Tesla owners delivered; however, the automaker never delivered on its part of the agreement.
Furthermore, many people placed deposits ranging from $50,000 to $250,000 to reserve the vehicle, which was initially scheduled to hit the market five years ago.
When unveiling the vehicle, CEO Elon Musk described it as a “halo car” that would deliver a “smack down” to gasoline vehicles.
That was almost eight years ago, and many electric hypercars have since launched and delivered this smackdown.
Tesla has partly blamed the delays on improving the next-gen Roadsters and added features like the “SpaceX package,” which is supposed to include cold air thrusters to enable the vehicle to fly – Musk has hinted.
Many people don’t believe any of it, as Tesla has said that it would launch the new Roadster every year for the last 5 years and never did.
Now, Lars Moravy, Tesla’s head of vehicle engineering, made a rare new comment about the next-generation Roadster during an interview at the X Takeover event, an annual gathering of Elon Musk cultists, last weekend.
He referred to Tesla’s next-gen Roadster as the “last best driver’s car” and said that the automaker did “some cool demos” for Musk last week:
We spent a lot of time in the last few years rethinking what we did, and why we did it, and what would make an awesome and exciting last best driver’s car. We’ve been making it better and better, and it is even a little bit more than a car. We showed Elon some cool demos last week and tech we’ve been working on, and he got a little excited.
We suspected that the comment might be about the Tesla Roadster, as the CEO made the exact same comment about Roadster demos in 2019 and 2024. You will not be shocked to hear that these demos never happen.
Electrek’s Take
The “last best driver’s car” before computers are going to drive us everywhere. It’s a self-fulfilling prophecy if you continue to delay the car. It might literally be the last car ever made that way. How would we ever know?
The truth is that the Roadster was cool when it was unveiled in 2017, but that was a long time ago. Tesla would need to update the car quite a bit to make it cool in 2025, and I don’t know that cold air clusters are it. You will have extreme limitations using those.
The Roadster is almost entirely in the “put up or shut up” category for me at Tesla. They need to stop talking about it and make it happen; otherwise, I can’t believe a word.
FTC: We use income earning auto affiliate links.More.
The PV5 is already available in several markets, but will Kia launch it in the US? After Kia’s electric van was spotted testing in the US again, a US debut could be in the works.
Is Kia’s electric van coming to the US?
Kia launched the PV5, the first dedicated electric van from its new Platform Beyond vehicle (PBV) business, in South Korea and Europe earlier this year, promising it will roll out in “other global markets” in 2026.
Will that include the US? Earlier this year, Kia’s electric van was caught charging at a station in Indiana. Photos and a video sent to Electrek by Alex Nguyen confirmed it was, in fact, the PV5.
Kia has yet to say if it will sell the PV5 in the US, likely due to the Trump Administration’s new auto tariffs. All electric vans, or PBVs, including the PV5, will be built at Kia’s Hwaseong plant in South Korea, which means they will face a stiff 25% tariff as imports.
Advertisement – scroll for more content
Following another sighting, a US debut cannot be ruled out. The PV5 Passenger model was spotted by Automotive Validation Engineer Chris Higa (@Chrisediting) while testing in Arizona.
There’s no denying that’s Kia’s electric van, but it doesn’t necessarily confirm it will launch in the US. But it could make sense.
Despite record first-half sales in the US, Kia’s EV sales have fallen significantly. Sales of the EV9 and EV6 are nearly 50% less than in the first half of 2024.
To be fair, part of it is due to the new model year changeover, but Kia is also doubling down on the US market by boosting local production. Earlier this year, Kia said the EV6 and EV9 are now in full-scale production at its West Point, GA, facility.
The PV5 Passenger (shown above) is available in Europe with two battery pack options: 51.5 kWh or 71.2 kWh, rated with WLTP ranges of 179 miles and 249 miles, respectively. The Cargo variant has the same battery options but offers a WLTP range of either 181 miles or 247 miles.
During its PV5 Tech Day event last week, Kia revealed plans for seven PV5 body types, including an Open Bed (similar to a pickup), a Light Camper, and even a luxury “Prime” passenger model.
Kia PV5 tech day (Source: Kia)
Kia is set to begin deliveries of the PV5 Passenger and Cargo Long variants in South Korea next month, followed by Europe and other global markets, starting in Q4 2025. As for a US launch, we will have to wait for the official word from Kia.
Do you want Kia to bring its electric van to the US? Drop us a comment below and let us know your thoughts.