Buying an EV is about to be a pain in the ass, thanks to stricter tax credits

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

The auto industry is scrambling to adjust to the new rules requiring that EVs must be assembled in North America, using parts and supplies sourced domestically or from official trading partners, in order for customers to qualify for the $7,500 tax credit. Most EVs have batteries that are sourced from China, meaning the new rules are written in such a way as to effectively disqualify the vast majority of EVs on the road today.

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

VW is the latest car company to push binding contracts over reservations in the months before the new tax credits go into effect. BMW, Audi, Rivian, and others are also telling customers to sign purchasing agreements in order to qualify for the old tax credit, which has no rules requiring North American parts or assembly, according to Electrek.

That’s because the Inflation Reduction Act includes a “transition rule” by which any customer with a “written binding contract for purchase” of a new electric vehicle before the law goes into effect may choose to take the old tax credit, even if the vehicle is delivered after the bill’s enactment.

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

According to the Alliance for Automotive Innovation, the auto industry’s main lobbying group, there are currently 72 EV models available for purchase in the United States, including battery, plug-in hybrid, and fuel cell electric vehicles. Of those models, 70 percent are ineligible for the tax credit when the bill passes. And by 2029, when the additional sourcing requirements go into effect, none would qualify for the full credit.

The National Automobile Dealers Association says it concurs 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 ascertain which EVs will no longer be eligible for the credit after the President signs this new requirement into law.”

Customer demand for electric vehicles is the highest its ever been, but the uncertainty surrounding the new tax credits may dampen that momentum, especially if customers find themselves scrambling to sign purchasing agreements for vehicles they’re not even sure they want to buy.