There’s little doubt the Inflation Reduction Act will have a seismic effect on the U.S. electric vehicle industry, but the dust hasn’t yet settled on the details that will determine the affordability of different makes and models now on the market.
Major players are already requesting tweaks and adjustments to the act. If enacted as written, the new law could have the unintended consequence of actually suppressing sales of North American EV manufacturers, because few, if any, can meet all aspects of the supply chain criteria in the language.
If this and other issues are addressed, however, a couple of basic trajectories will have been set that carry long-term implications on supply and demand.
- First and perhaps most obvious is the clear effort by the act to support domestic EV manufacturing. Vehicles made outside North America do not qualify for new federal tax incentives.
- The second is the effort to democratize demand. To attract Main Street buyers, the act sets vehicle price and consumer income limits to qualify for the tax incentives.
Putting these two trajectories into motion offers the potential to change the mix of offerings that move into the market and perhaps will better reflect the demand dynamics of the internal combustion engine market, where light trucks largely prevail.
The new legislation offers a second bite at the apple for some early EV makers in the U.S. For those such as Tesla that no longer qualify for previous tax incentives because they passed the original 200,000-unit sales cap, the act offers an incentive to introduce EVs at price points that will help less-affluent buyers take advantage of income threshold-based tax credits. It opens the door for established EV players to continue capturing market share for cars priced below $55,000, or pickups and SUVs priced less than $80,000.
Prospects for mass-market EVs such as the Chevy Bolt, which ranks among the top 10 in J.D. Power’s August Electric Vehicle Consideration Pulse Survey, will look brighter. In July, Chevy announced a nearly $6,000 price cut for the 2023 model. When coupled with the tax credit, customers meeting the income criteria could stand to realize more than $13,000 in savings. And, starting in 2024, the credit will be realized at point of sale, putting that money immediately back into consumers’ pockets.
The short- and long-term effects of the act cannot be understated — especially in a shifting EV landscape where current standings are being disrupted by adoption drivers such as affordability and the availability of mass-market pickups, crossovers and SUVs with mainstream appeal.