Luxury electric vehicle startups Rivian Automotive and Lucid Motors are rushing to help reservation holders qualify for the current $7,500 federal tax credit before the recently passed Inflation Reduction Act replaces it with a more restrictive incentive that includes price and income caps.
With President Joe Biden expected to sign the climate and tax bill into law this week, the EV startups are telling buyers with vehicle preorders that the new law could eliminate their eligibility for the EV credit unless they sign a binding sales contract in the coming days.
“Once signed into law, the Inflation Reduction Act will add new restrictions to U.S. buyers’ eligibility,” Rivian said in a blog post. “Under these new restrictions, an electric pickup truck or SUV must be priced below $80,000 and the buyer must fall below certain income thresholds.”
Tesla, the EV leader by sales, is no longer eligible for current EV credits, which began in 2010.
Before the new regulations take effect, Rivian said, the existing credit can be locked in. The automaker referred to the credit by its IRS tax code, IRC 30D. The current EV credits have no price limit for vehicles and no income cap for buyers.
“Buyers who have a ‘written binding contract’ to purchase a qualified EV before the Inflation Reduction Act becomes law will be able to apply under the current IRC 30D tax requirements,” Rivian said. The EV startup provided a link for customers interested in signing a contract.
Lucid also said last week that it is “exploring opportunities to invite reservation holders to confirm their orders now in order to keep eligibility for current incentives.” Some reservation holders have posted online their email invitations from Lucid to sign a binding contract and lock in the tax credit.
Reservations and preorders are similar terms for buyers who have placed a refundable deposit but not yet committed to buying a vehicle because its production has not been scheduled.
Rivian said this month it has a preorder backlog of about 98,000, with this year’s production estimated at 25,000 vehicles. Lucid said it has about 37,000 reservations and will build between 6,000 and 7,000 vehicles this year.
Among auto industry analysts, there remains some confusion over when the current credits expire.
Some believe they will be available until the end of the year for vehicles made in North America based on language in the new law. Others suggest they will end with Biden’s signature.
The new law includes a “transition rule.” It states that “before the date of enactment of this Act,” a taxpayer who “purchased, or entered into a written binding contract to purchase, a new qualified plug-in electric drive motor vehicle” would qualify for the current credit.
Those outgoing incentives have given automakers a quota of 200,000 for plug-in vehicles, based on battery capacity. Full-EV models have qualified for the full $7,500, while plug-in hybrid vehicles have generally qualified for less.
Tesla and General Motors used up their 200,000 credits two years ago.
Unlike the new incentives that go into effect Jan. 1, the current ones apply to vehicles made outside North America and have no sourcing requirements for their battery materials or manufacturing.
The loss of the existing incentives — and timing of their expiration — is significant because the new rules are so stringent that most EVs will not immediately qualify.
An automaker trade group, Autos Drive America, expects the current credit to continue until the end of the year, “with the only new requirement being North America assembly.”
Rivian’s factory is in Illinois, and Lucid’s plant is in Arizona.
But the Zero Emission Transportation Association told Automotive News that it expects the current EV credit to go away once Biden signs the bill. Only binding sales contracts before that date would quality for the incentive, the group says.
Greater certainty is expected from the IRS as its modifies the EV tax rules.
Under the new law, Rivian vehicles will face the price cap of $80,000 for its R1T pickup and R1S SUV, and buyers will face income caps of $300,000 for joint tax filers.
The amount of the new tax credit, up to $7,500, depends on where battery minerals are sourced and where the battery and vehicle manufacturing take place. The credit is broken into two $3,750 chunks, one focused on North American battery materials and the other on local manufacturing.
The base trims of the R1T and R1S are under the $80,000 cap, but Rivian CEO RJ Scaringe said last week that the average price of recent configurations is around $93,000 with options.
Scaringe suggested that future Rivian vehicles on the smaller R2 platform that’s under development are more likely to qualify for credits, based on price and greater local content.
“As we have contemplated and planned for the long-term supply chain for R2, we have always looked at it through the lens of making sure we had domestic supply chain to support the ramp-up of that product,” Scaringe said.
Lucid will miss the price cap for its current vehicle, the Air sedan, which starts at $89,050. Under the new law, sedans have a price cap of $55,000 to be considered for the EV credit.
Lucid’s next vehicle, the Gravity SUV, is not expected until 2024, and pricing has not been released. Like Rivian, Lucid is developing a platform for more mainstream vehicles, but it has not given details.