President Biden signed the Inflation Reduction Act on August 16, 2022, and the implications for the automobile franchise dealers are still being debated and worked out more than seven months later, while continuing to prepare for both the near and long-term implementation of elements contained in the legislation. The President has talked about the benefits of the Act for the EV manufacturing industry and future EV consumers, touting its $374 billion in energy and climate provisions. Below are a few important points for New Jersey dealers:

• The Act saves some EV consumers up to $7,500 for new EVs and $4,000 for used EVs. The tax credit knocks out higher-priced and luxury EVs with a cap of $80,000 for vans, SUVs, and pickups, and a cap of $55,000 for passenger cars. It also sets a maximum adjusted gross income (AGI) for those who can claim the credit ($150,000 for single filers, $225,000 for heads of households, and $300,000 for joint filers).
• It changes the eligibility requirements for the federal EV tax credit. First, while the federal tax credit will apply to applicable EVs sold or ordered with a binding contract (irrespective of its delivery date) executed before August 16th, 2022, there was some confusion about what a “binding contract” is for purposes of the Act. After recognizing the confusion created regarding the definition of a binding contract, the Internal Revenue Service responded with guidance.
• The Act changed the list of vehicles that were eligible for the federal EV tax credit. Following pushback from OEMs, dealers and consumers, the list of eligible vehicles was expanded and the implementation of the provision regarding the origin of battery minerals and parts was delayed to allow further discussion. The Treasury Department recently announced it will not finish establishing the rules that govern where electric vehicle (EV) battery minerals and parts have to be sourced until sometime in 2023. As of January 1, 2023, an OEM’s calculation of the minimum credit for a particular VIN will take into account:
  • The vehicle’s battery capacity (now minimum 7 kWh)
  • The vehicle’s MSRP (< $80,000 for trucks and < $55,000 for light duty cars)
  • The vehicle’s gross vehicle weight (< 14,000 pounds)
  • The vehicle must be finally assembled in North America
• If the vehicle meets the requirements above, the maximum tax credit will revert back to what it was before August 16, 2022 ($2,500 plus $417 per kWh for 5kWh batteries and up, to a maximum of $7,500; a minimum credit of $3,751 for a creditable 7 kWh-equipped vehicle and $7,500 for a minimum 16 kWh-equipped vehicle).
• Effective January 1, 2023, the per-OEM cap was eliminated for General Motors, Toyota (and Tesla) vehicles, which will be eligible for the EV tax credit if they meet the requirements.
• The Act contains a termination date of December 31, 2032 for all federal EV tax credits.

The Battery Belt and New Jersey: We Are Not in It

The Act helps to set the EV supply chain for increased EV battery production growth in the United States and for more American-made EVs that are independent of foreign EV battery production. New Jersey is not a Battery Belt state and does not benefit from the Act’s provisions. That status may change if the Murphy Administration, emboldened by the Act’s provisions, decides to create an economic incentive to encourage EV-related factories or EV battery production investment in the Garden State.

The Act’s battery provisions will help those states located in the Battery Belt, where some automotive manufacturers and energy/IT companies have built (or will build) EV-related factories and battery facilities. According to the Center for Automotive Research, currently, the Battery Belt states (with their corresponding industry EV investors) include:

• Alabama (Hyundai; Mercedes-Benz)
• Arizona (Lucid Motors)
• California (Tesla)
• Georgia (Rivian Automotive; Hyundai)
• Illinois (Lion Electric; Rivian Automotive)
• Indiana (Stellantis; General Motors)
• Kansas (Panasonic)
• Kentucky (Ford)
• Michigan (General Motors)
• Mississippi (Nissan)
• Missouri (Ford)
• Nevada (Tesla and Panasonic, joint venture)
• Ohio (Ford; Foxconn)
• Texas (Tesla)
• Tennessee (Ford; General Motors and LG Energy Solutions, joint venture; Volkswagen)