What Biden's Landmark IRA Bill Means for EV Adoption in the US

Automakers have been pushing for the U.S. government to make electric vehicles (EVs) more attainable for buyers with tax credits and additional incentives. President Joe Biden, who has been a proponent of EVs since he took office, signed the Inflation Reduction Act (IRA) bringing some major changes to the EV sector.

The IRA devotes nearly $370 billion to tackling climate change. "This bill is the biggest step forward on climate ever—ever—and it’s going to allow—it’s going to allow us to boldly take additional steps toward meeting all of my climate goals—the ones we set out when we ran," said Biden at the signing.

It has many parts, including changes to the current electric vehicle tax credit. All EVs assembled in America will be eligible for a $7,500 federal tax credit if they are put in service after December 31, 2022. The amount of the credit depends on where its parts are sourced and its final assembly point.

Additionally, used EVs that are at least two years old are also eligible for a tax credit up to $4,000 or 30% of the purchase price, whichever is less.

Which vehicles will qualify? The EV tax credit applies to any “clean vehicle” like a fully electric vehicle, a plug-in hybrid with 4 to 7 kWh of battery capacity, or a hydrogen fuel cell vehicle. Beginning in 2024 buyers can take the EV tax credit as a discount at the time of the purchase, making it even more appealing for buyers that don’t want to wait until tax season to get the incentive.

There are some caveats with the IRA since there are income limits on who can claim the credit. A single person with an adjusted gross income over $150,000 won’t qualify for the EV tax credit. If a person files as head of household and makes over $225,000 they are also not eligible. For married couples, the income limit is $300,000.

There are also price caps as well, since vans, pickup trucks, and SUVs with a price tag over $80,000 aren’t eligible. A vehicle has to have an MSRP below $55,000 to qualify and a used EV has to cost less than $25,000 to qualify.

A big issue with the previous EV tax credit rules was that once a manufacturer built more than 200,000 electric vehicles, the tax credit would be phased out. This also already happened to Tesla and General Motors, which made them less attainable for EV buyers. Now, the cap has now been removed so any EV is eligible.

Lastly, the IRA requires the final assembly of the EVs to take place in North America and that its components are sourced here as well. This unfortunately means several EVs from automakers—like Kia, Toyota, and Volkswagen—will be ineligible for the incentives. While this stimulates domestic production of electric vehicles, it limits the broader adoption of electric cars through inequitable incentivization.

While the updated tax credits will make EVs more attainable for buyers, there’s still the issue of the lack of charging infrastructure that will still be a hurdle to the full adoption of EVs.

In the first quarter of 2022, there's been a 60% increase in registrations of EVs, which can be 40% cheaper than traditional cars, suggesting that EVs are finally becoming more mainstream in America. At the end of the day, the IRA with its updated EV tax credits hopefully empowers buyers who need a car in their day-to-day lives to purchase an EV.