The Inflation Reduction Act (IRA), the Democrats’ pared-down environmental and economic package, appears to have enough momentum to pass and with it comes tax perks for electric vehicle buyers. But as the bill enters the final stretch, the EV company Rivian isn’t among the crowd celebrating this legislative milestone. Despite the climate change benefits touted by backers of the IRA, it looks like the bill will actually increase the cost of some EVs in the short term.
Or, as a Rivian representative told Reuters on August 3, it seems the bill is poised to “pull the rug out from consumers considering purchase of an American made electric vehicle.” So if you’re already in the market for a high-end EV like a Rivian, with models ranging from $67,500 to $98,000, first of all, congratulations on having all that disposable income. But second of all: If you want the largest possible tax credit, you need to look closely at this bill.
Foreign battery parts are a problem
To start with, there’s a giant, looming problem for manufacturers and that problem is called China.
According to a 2021 report from the Federal Consortium for Advanced Batteries, a government group led by the Department of Energy, China makes 76 percent of lithium batteries, compared to eight percent in the U.S. The version of the IRA that just passed in the Senate, and looks like it’s about to pass in the House, will require that, by 2024, the materials in EV batteries be at least 40 percent sourced from either North America or a partner country under a free trade agreement with the U.S. Otherwise, the buyer of said EV doesn’t qualify for the full $7,500 tax credit. This sourcing requirement jumps to 100 percent by 2029. That means huge, wrenching changes to the battery supply chain have to happen over the next seven years if these tax credits are going to benefit EV consumers in the long run.
Meet the new tax credit: not as generous as the old tax credit
But Rivian detailed yet another likely problem in a press release on Friday: The tax laws currently in force are more favorable to Rivian’s present-day buyers than the new ones will be. “Under these new restrictions,” writes Tony Caravano, Rivian’s head of customer engagement, “an electric pick-up truck or SUV must be priced below $80,000 and the buyer must fall below certain income thresholds to qualify.”
These provisions of the bill must sting particularly for Rivian because the company just increased the price of the R1S electric SUV by $12,000 to $84,500 in March. Before that, the price of an R1S would have been below this new price threshold, at $72,500. And as for those income requirements, for buyers to qualify for the full credit, they must make less than $150,000 as individual income-earners or less than $300,000 for those filing jointly.
So if you were about to buy a Rivian, the takeaway is that there’s a good chance your tax credit is about to disappear. But Rivian has a solution, according to the press release: “Fortunately, 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 credit requirements.”
Rivian then provides a page where consumers may immediately enter into just such a contract. If you click here, you too can formalize your Rivian purchase today by giving the company a non-refundable $100 deposit.
Most buyers of more economically priced EVs, like the Nissan Leaf or the Kia Niro EV, don’t need to worry about this provision of the IRA. In fact, even many Rivian vehicles will qualify for the new tax credit. But if you’re entertaining the thought of buying, say, a $169,000 Lucid Air, and you’d like the cost to come down a tiny bit, there’s no time like the present to ask the company for a “written binding contract” like the one Rivian is offering.
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