The Inflation Reduction Act upended the EV marketplace, slashing EV tax credits for foreign built EVs as of August 16th and as of January 1st, restricting tax credits to just those making less than $150k individuals, $300k couples. And that’s not even to mention the severe uncertainty around the level minerals produced in allied versus hostile nations. The one upshot is that EVs produced by larger scale EV makers whom lost eligibility after hitting 200k units, namely Tesla & GM and others like Ford that were close to hitting this mark would regain eligibility.

But amidst this was yet another aspect with yet another repercussion: leasing. Until the end of this year, without individual eligibility (read: income) being a factor, anyone would qualify for tax credits and that included commercial entities. But with a $150k income cap, how could a captive bank or leasing company whom would ultimately own and ‘purchase’ a leased vehicle qualify for the tax credit? They wouldn’t, making leasing an EV a miserable proposition, costing the end consumer $7,500 more or over $208 per month more expensive before considering interest or sales tax on a 36-month lease.

The BMW i4, like a number of other foreign-made EVs may see a tax credit reprieve thanks to new guidance on leasing

With leasing traditionally about one-third of the industry, leasing is a crucial sales type, perhaps even more so for higher cost EVs. New treasury guidance re-establishes the ability for a commercial entity to obtain eligibility for the EV tax credit and while it’s not mandated, this gives the ability for these commercial entities (in this case the myriad captive banks and leasing companies that effectively purchase, own and ‘rent’ out vehicles to end consumers) to pass that $7,500 on to consumers in the form of lease cash, residual subvention and/or money-factor (read: interest) subvention.

While this [likely] means that anyone can then qualify for the EV tax credit irregardless of income level as long as they lease, not finance or purchase their vehicle, bear in mind that final rules are delayed until March and with a host of undetermined aspects of the tax credits up for resolution, there’s no guarantee that final changes won’t yet result in further upheaval in qualification, both for vehicles or consumers. The battery mineral requirements are also suspended until such time and it’s possible that March revisions may also curtail the ability to circumvent income eligibility and non-North American assembly for leasing.

Models like the Bolt EV/EUV may see a massive uptick in interest, particular for leasing

Q1 2023 will probably bring quite a bit of uncertainty and scrambling, mostly around Bolts & Tesla Model 3s that re-attain tax credit eligibility, but with leasing re-opening the door for eligibility for otherwise ineligible vehicles and consumers, expect a sales quarter of heavy EV activity, potentially outstripping the roughly 5-6% share of retail sales that we have observed in 2022.  After that? It really depends on where the Treasure, Senator Joe Manchin (who has already stated that he views the open eligibility for commercial entities as a loophole) and other key players land.