How to bypass nearly every restriction of the EV tax credit by leasing

Published

3 years ago

April 5, 2023

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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.

But EV demand might not normalize until ICE cars die out, which is a trend we’re seeing signs of in China right now and which could repeat in other markets as well.

Electrek’s Take

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.

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The Lexus LFA is back, and this time it’s 100% electric

Published

3 hours ago

December 5, 2025

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The Lexus LFA is back, and this time it's 100% electric

Lexus is bringing the sports car back, but this time the LFA will be fully electric and will be developed alongside the Toyota GR GT and GR GT3. Here’s our first look at the EV sports car.

Meet the electric Lexus LFA Concept

The LFA is making a comeback as a low-slung, fully electric supercar. Lexus unveiled the new LFA Concept on Friday, calling it a next-generation battery-electric (BEV) sports car.

Lexus said the LFA name “embodies the technologies that engineers of its time should preserve,” adding it’s “not bound to vehicles powered by internal combustion engines.”

The electric LFA is being developed alongside the Toyota GR GT and GR GT3 race cars. Although it will share core technology and other components, including the GR GT’s all-aluminum frame, the new LFA will arrive with a unique design and advanced interior thanks to its electric powertrain.

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Inside, the EV sports car features a yoke-style steering wheel, first showcased on the RZ electric SUV. The minimalist design is intended to create “a uniquely immersive environment,” according to Lexus.

At 184.6″ long, 80.3″ wide, and 47″ tall with a wheelbase of 107.3″, the electric Lexus LFA concept is about the size of many modern-day supercars, including the Aston Martin DB12 and Ferrari Roma.

The LFA EV will be centered on three key elements, shared with the GR GT, including a low center of gravity, a light but sturdy frame, and optimized aerodynamics.

Lexus has yet to reveal full details, aside from confirming the new LFA will be fully electric. With Toyota claiming it plans to launch its first solid-state battery in a high-performance vehicle by 2027, will the Lexus LFA be the one to debut it? We will find out more shortly.

While the new Lexus LFA is surprisingly an EV, Toyota is sticking to its roots with the GR GT, which will be equipped with a hybrid system that still uses a 4.0-liter V8 twin-turbo engine and a single electric motor.

Toyota announced similar plans to continue launching gas-powered vehicles under its new ultra-luxury Century brand.

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Tesla launches ‘Standard’ Model 3/Y in Europe with aggressive pricing to stop bleeding sales

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4 hours ago

December 5, 2025

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Tesla launches 'Standard' Model 3/Y in Europe with aggressive pricing to stop bleeding sales

Tesla has officially launched new “Standard” trims for both the Model 3 and Model Y in Europe after launching them in North America. The automaker is aggressively positioning these stripped-down models to undercut competitors and arrest a painful sales slump in the region, with the Model 3 now starting at an impressive €36,990 in Germany.

As we reported recently, Tesla is facing a tough quarter in Europe. Registration data from November showed sales down 12.3% year-over-year, but the reality is even starker: if you exclude Norway, which is soaring due to incentives going away at the end of the year, Tesla’s sales in the rest of Europe have plummeted by over 36%.

To counter this, Tesla updated its online configurator today with these new entry-level options that significantly lower the barrier to entry, albeit with some notable compromises in features.

The Model 3 Standard: breaking the €37k barrier

The new Model 3 Standard is priced at €36,990 in Germany, France, and Italy. This is a massive psychological breach of the €37,000 mark, putting it well within swinging distance of mass-market ICE vehicles and undercutting key electric rivals.

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In the Nordic markets, the pricing is equally aggressive:

Norway: NOK 330,056
Sweden: SEK 449,990

Despite the lower price, the specs remain impressive. The Model 3 Standard is rated at 534 km (332 miles) of WLTP range. It achieves 0 to 100 km/h (62 mph) in 6.2 seconds.

Priced significantly lower than the next cheapest Model 3, like in North America, the new Model 3 Standard is a much better offer than the Model Y Standard,

The Model Y Standard: a tougher sell

The Model Y also gets the “Standard” treatment. It is now listed at €39,990 in the main European markets.

Tesla lists the Model Y Standard with the same 534 km WLTP range as the Model 3 Standard.

Like in North America, the proposition here is not as attractive as with the Model 3 Standard. It is closer in price to the ‘Premium’ version and, on top of losing almost 100 km of range, the Standard version comes with many fewer features.

De-contenting: What do you lose?

To hit these price points, Tesla had to cut costs. We are seeing a new level of “de-contenting” that is new for the brand. Tesla has always been known to cut costs aggressively and remove features it deemed not useful, but in this case, it cut things close to the bone.

Here is what is gone compared to the Premium/Long Range trims:

Seats: The full vegan leather is replaced by “partially textile seats”.
Rear Screen: The 8-inch rear display introduced with the Highland refresh has been removed.
Comfort: Heated rear seats are no longer included.
Audio: The system is downgraded to 7 speakers, removing the subwoofer and amplifiers.
Wheels: The alloy wheels are gone, replaced by steel wheels with plastic aero covers.

That’s on top of the more obvious exterior changes, such as removing the light bars, updating the front end, and losing the panoramic roof.

The Competition

This move puts Tesla in a fiercely competitive position against the influx of Chinese EVs and legacy European automakers.

Volkswagen: The VW ID.3 Pure has recently seen price cuts bringing it to around €29,760 in Germany with bonuses, but the Model 3 offers significantly more range and space. The ID.4 Pure, a direct Model Y competitor, sits around €40,335 , making the Model Y Standard slightly cheaper and arguably better specced in terms of software and charging network.
BYD: The Chinese auto giant is Tesla’s main headache right now. The BYD Atto 3 is priced at €37,990 in Germany. The Model 3 Standard now undercuts it by €1,000, while the Model Y is only €2,000 more expensive for a much larger vehicle.
Volvo: The successful EX30 starts around €36,000–€39,000 depending on the market. Tesla could threaten the higher end of the demand for this one.

As you can see, there’s some room for Tesla to work.

Electrek’s Take

There is no denying that Tesla is hurting in Europe. We always said that this was due to a combination of a stale lineup facing increased competition and what we’ve called “brand toxicity” stemming from Elon Musk’s political activism.

I’m actually a fan of the “Standard”/ de-contenting idea in the sense that it offers more options. Not everyone needs a rear screen or heated seats in the back.

However, I do worry about the value proposition, especially with the Model Y. The Model 3 makes a lot more sense to me.

I think this should help Tesla in Europe. It could stop the bleeding and help Tesla form a bottom in Europe.

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Meet the Kia Vision Meta Turismo: Could this be the EV8? [Images]

Published

4 hours ago

December 5, 2025

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Meet the Kia Vision Meta Turismo: Could this be the EV8? [Images]

Kia is celebrating its 80th birthday with a bang. The new Kia Vision Turismo concept offers a glimpse of what will likely arrive as the EV8. Here’s our first look at it.

The Vision Meta Turismo is more than a concept car. It’s “Kia’s vision for a new era of mobility,” and what will likely become the EV8.

Kia unveiled the futuristic concept car during an event in Korea on Friday, celebrating the brand’s 80th anniversary.

Several high-profile executives were in attendance, including Hyundai Motor Group executive chair Euisun Chung and Kia’s president and CEO, Ho Sung Song.

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The Vision Meta Turismo concept pays homage to the 1960s era of long-distance touring, blended with Kia’s bold “Opposites United” design theme showcased on its latest electric vehicles, such as the new EV4, EV5, and EV6.

Although details are still pretty slim at this point, the concept car is expected to fill the EV7 or EV8 spot when it arrives in production form.

The low-riding GT looks like an electric successor to the Stinger, similar to the Polestar 5, with a sporty silhouette and aggressive front end.

Inside, the Kia Vision Meta Turismo offers a “lounge-inspired interior” with futuristic digital tech, unique design elements, and a spacious layout.

The yoke-style steering wheel “reimagines the next-generation intuitive driving interface,” Kia said. It’s equipped with three different digital modes: Speedster, Dreamer, and Gamer, which use an AR Head-Up Display (HUD) to create an immersive, personalized driving experience.

Featuring smart glass that’s integrated into the vehicle, the AR HUD projects graphics in front of the driver “as if they are floating above the road in three dimensions.”

Given Kia has already confirmed plans to cover nearly all segments, from the EV1 to the EV9, the concept is expected to be named either the EV7 or EV8 when it launches.