Electrification & Electric Vehicle Tax Credits

As we transition to electric and electrified powertrains, we will see more government involvement, investment, and incentives for electrification.

Toyota’s advocacy is focused on ensuring that the new EV tax credits and other clean energy incentives do not tip the scales in favor of one manufacturer or one technology.

If the federal policy were to favor one automotive company or zero-emission technology over another, Toyota would be at a severe competitive disadvantage.

What should I know?

Combatting climate change by reducing carbon emissions is a top priority of President Biden. To accomplish this, the Biden Administration is using legislative and regulatory tools including restructuring EV tax credits and increasing fuel economy standards.

Most recently, the Inflation Reduction Act (IRA), signed into law by President Biden on August 16, 2022, redefined the landscape around EV credits for consumers.

Implementation of this new EV tax credit structure is continuing into early 2024. The U.S. Treasury Department, which was tasked with implementing the law, expects to finalize guidelines on key battery and critical mineral content provisions sometime in the Spring/Summer of 2024.

Below are the new tax credits:

Purchasing a new EV (Section 30D)

Up to a $7,500 tax incentive for consumers

Vehicle requirements:

Requires that EVs are assembled in North America to qualify for the tax credit.
Sedans must have an MSRP under $55,000, and SUVs and trucks an MSRP under $80,000.

The $7,500 credit is broken into two equal ($3,750) parts, each with a separate hurdle:

More than 40% of the materials must be mined or processed in the U.S. or a country with which we have a Free Trade Agreement (FTA) – or no $3,750 credit.
More than 50% of the components in the battery must be manufactured and assembled in North America or no $3,750 credit (both the material and component percentages increase by 10% a year).

Customer requirements:

Individuals must make under $150K annually or $300K for couples filing jointly.

Purchasing a used EV (Section 25E)

Provides a $4,000 tax credit for consumers who buy a used EV.

Leasing a new EV (Section 45W)

A $7,500 commercial EV credit that is given to a captive finance company which leases the EV to the consumer. It is not required that the full amount of the credit is passed on to the consumer.

State

At the state level, California mandates an increasing number of zero-emission vehicles (ZEV) sales each year – a mandate 14 other “ZEV states” follow. California’s ZEV mandate requires that by 2035 100% of new vehicles sold in California will be zero-emissions (including plug-in hybrids).

The critical minerals used in one 100Kwh BEV would produce six plug-in hybrids or 90 hybrid vehicles.

What Should I Say?

To reduce carbon as quickly as possible, Toyota must provide a variety of electrified powertrains for our customers including battery electric, plug-in hybrid, hybrid, and fuel cell electric vehicles.
Toyota is working hard to ensure that consumers have affordable, electrified options and that public policy helps, not hinders, this transition.
Because of the limited supply of minerals and materials needed for battery production, it’s important that we use these materials efficiently.
- For example, the materials used in one 100Kwh BEV would produce six plug-in hybrids and 90 hybrid vehicles. Those 90 hybrids reduce 37 times more carbon than the one BEV. Depending on needs and driving habits, this is a more efficient use of expensive and limited materials.

Want to learn more? Contact:

peter.patterson@toyota.com

The Rest of the Story

The EV tax credits are intended to move the battery supply chain to North America and allied countries. And that’s why, initially, very few vehicles will qualify for the new clean vehicle credit once the strict mineral sourcing and battery assembly provisions are implemented.

What does this mean for Toyota? Our EVs do not currently qualify for the 30D tax credits due to our EVs not meeting the North America assembly requirement. Our EVs are eligible for the 45W commercial EV tax credit, and finance companies can elect to pass this credit on to the costumer as part of lease pricing.

Toyota supports the IRA’s goal of reducing carbon while transitioning the EV supply chain to North America and allied countries. We will reduce carbon now by offering a diverse array of electrified vehicles to our customers, allowing them to choose the option that suits their needs.

The race is on for all automakers to build a North American battery supply chain. Toyota team members in R&D, production engineering, and purchasing are building on nearly 40 years of experience to make that happen. And we will keep fighting for a level playing field to win that race.