2 automakers have already used all of their EV tax credits, and 3 more are coming soon

Electric vehicles are becoming increasingly popular. And a big reason is the federal electric vehicle tax credit, which has made new electric vehicles more affordable for more Americans. However, these tax credits come with special rules that limit the number of credits automakers can use. Two automakers have already used up all of their federal electric vehicle tax credits, and three more will soon join them if the rules don’t change.

A Brief History of the Federal Electric Vehicle Tax Credit

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The current federal electric vehicle tax credit went into effect in 2010, and the idea was to get Americans to drive cleaner, more fuel-efficient cars. As a result, the tax credit could be used for EVs but also for certain hybrids. The amount of the tax credit would be based on the size of the car’s battery, so hybrids would get a lower tax credit than electric vehicles.

Moreover, the tax credit was not available to everyone. Because of the way accounting and taxes work, the people who benefited from these credits were mainly those who owed a lot of taxes each year. Each automaker received 200,000 credits. The number of credits decreased as a car manufacturer approached the limit.

The auto industry has changed rapidly since 2010, when Tesla started making electric vehicles popular and affordable. Many automakers have followed in Tesla’s footsteps, which is why more and more automakers are running out of credits.

2 automakers have already exhausted their federal EV tax credits

Tesla has exhausted its federal electric vehicle tax credits under current guidelines | Press Kena Betancur/VIEW via Getty Images

Unsurprisingly, Tesla was the first to run out of federal tax credits, at the end of 2019. Since Tesla’s entire lineup includes electric vehicles, nearly every sale meant a customer would use a credit. When Tesla introduced the affordable Model 3, many consumers bought a Tesla and used credit.

General Motors was the second automaker to use its credits – it ran out in early 2020. The main reason is the Chevy Bolt, but the Volt also contributed. Sales of the Chevy Spark EV and Cadillac CT6 PHEV also depleted GM’s credits.

3 other automakers will soon reach the limit

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Toyota will soon join the club. The Japanese auto giant hasn’t hit the 200,000 vehicle limit yet, but its credits are dwindling fast. According to APE, Toyota vehicles purchased after September 30, 2023 will not be eligible under the current rules. Unlike Tesla and GM, Toyota will hit the limit mainly because of plug-in hybrids. It has a few popular PHEVs that qualify for credit, including the Prius Prime and RAV4 Prime.

Moreover, Nissan and Ford are about to reach the limit, EV adoption reports. Nissan can thank the Leaf, an affordable electric vehicle that has seen consistent sales for more than a decade. Ford is nearing the limit with plug-in hybrids like the Escape PHEV and all-electric vehicles like the popular Mustang Mach-E. Additionally, the Blue Oval sells the E-Transit, an electric van that companies buy for their delivery fleets.

The good news is that the 200,000 credit limit will disappear if the Inflation Reduction Act is passed. This law will remove the 200,000 credit limit, but add new rules that makers of electric vehicles must follow if they want to take advantage of federal tax credits.

RELATED: Does the 2022 Hyundai Ioniq 5 qualify for the federal electric vehicle tax credit?

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