Toyota to lose full EV tax credit later this year

The 2023 Toyota bZ4X is the automaker’s first all-electric vehicle, and the mere existence of a Toyota EV should guarantee it some success. But the bZ4X will face a few challenges when it goes on sale – initial range estimates are just acceptable, rear headroom is tight, and the odd steering wheel position makes it difficult to feel comfortable in the driver’s seat.

But the bZ4X has a downside you might not expect, and it has to do with Toyota’s success in selling plug-in hybrids. Toyota is about to lose its entire federal electric vehicle tax credit, which means bZ4X buyers who wait too long will end up paying more for their new electric SUV.

What is the EV tax credit?

A federal tax credit is available to buyers of new electric vehicles and certain plug-in hybrids (a full list is available here). The credit encourages buyers to consider an eco-friendly car for their next purchase, with a credit of up to $7,500 available depending on battery size.

It is important to note that this credit is only available to manufacturers who have sold less than 200,000 EVs and PHEVs combined. The incentive begins to halve two quarters after sales of electric vehicles and plug-in hybrid vehicles cross that threshold. For a vehicle that qualifies for the full $7,500 credit, for example, the first reduction caps the credit at $3,750. The credit then drops to $1,875 six months later. And six months after setting up the $1,875 credit, the credit drops to zero. State and local governments may have their own incentives, but they are only a fraction of what the federal government offers.

To date, only General Motors and Tesla have sold enough electric vehicles to not qualify for the federal tax credit.

Toyota will likely lose its federal tax credit by the end of next year

According to a recent Bloomberg report, cumulative sales of Toyota plug-in hybrids — think the Prius Prime and RAV4 Prime — hit 183,000 at the end of 2021. The report says an additional 8,421 PHEVs were sold in the first quarter. . With continued interest in Toyota’s plug-ins and the impending launch of the bZ4X, the automaker is almost certain to hit the 200,000 unit milestone by the end of the second quarter.

Early July will likely mark the beginning of the end for Toyota’s federal tax credit. But potential buyers will have some time to make up their minds. Remember that the reduction to $3,750 doesn’t begin until two quarters after crossing the threshold, so buyers have until the end of September to get full credit. Once April 1 arrives, the credit drops once, drops again in April 2023, and disappears completely in October 2023.

It should be noted that lawmakers are currently considering extending the federal tax credit to continue encouraging the adoption of electric vehicles, but it is unclear at this stage whether these legislative efforts will be successful.

Edmunds says

The launch of the 2023 Toyota bZ4X will likely coincide with the automaker losing the federal tax credit. Buyers have the rest of the summer to purchase a new Toyota PHEV or EV with the full credit amount.