IRS weighs in on tax rebate, mostly bad news for Model Y

[BitJam]

You know that when people sell cars they don't all go to the crusher ya? How long the first owner keeps something has nothing to do at all with how long it remains valuable in the market. Each of those cars becomes a used vehicle for people farther down the income scale.

The problem is when the car is worth less (and perhaps worthless) to everyone compared to a much cheaper and cheaper-to-run EV. I'm not saying we should ban the production of PHEVs. I'm saying it's a mistake to spend tens of billions of dollars to boost their production right before they become obsolete.

While she was press secretary, Jen Psaki basically admitted that the anti-Tesla BS in the first bill was due to the influence of the corrupt UAW. Likewise for the president's anti-Tesla actions and lies (and as predicted, that idiocy did not age well and thus begat more idiocy). This bill is better but the influence of the corrupt UAW is still there. Environmentalists were not pushing for massive subsidies for PHEVs. These subsidies were not there to help the environment, or to help the public, they were there exclusively to help keep the UAW relevant for a few more years by letting traditional auto firms postpone bankruptcy by getting subsidies for cranking out gas guzzling vehicles with little batteries and motors tacked on. It's insanity! Yes, PHEVs can gain some efficiency from regen but they lose efficiency by lugging around two powertrains.

Imagine the headlines and outroar if Teslas were 100 times more likely to catch fire than other cars. Yet hybrids are 140 times more likely to catch fire than an EV and there's nary a peep about it. Certainly no headlines or outroar. The added risk is probably due to the complexity of combining an electric powertrain with a gasoline powertrain in the same vehicle where one spark can ruin your whole day. If EVs will be cheaper and cheaper-to-run in two years then it makes no sense to put as many new PHEVs as possible on the road now. Except if you're the UAW or big auto.

From Rob Mauer (on the original BBB bill which gave PHEVs an even higher tax credit):

Can anyone in the @WaysMeansCmte justify a $9,000 tax credit for vehicles with 7 kWh batteries — batteries which cost less than $1,000? This is an egregious waste of resources, ensures the US falls behind in new energy vehicles, and enables further destruction of our environment.​

BTW: as for your higher electric rates, the plural of anecdote is not evidence. The same faulty logic can be used to say the recent cold wave across the US implies global warming is not real. If you somehow missed the Tony Seba video I linked to previously, I encourage you to watch it soon. The exponential downward trends in battery and renewable energy costs are stunning and have mind blowing, world changing implications.

 

[Snow Drift]

If the government was honest and intelligent about wanting to increase the amount of EVs for the general population, then I agree with almost everything already said. The best to do this would of been an instant rebate at the time of sale. This would not only lower the price of the vehicle, it would lower the amount of sales tax paid if applicable, and result in a lower monthly cost since most people finance their vehicles.
Also, many people I know, myself included have changed their W-4 so they don't get hit with a tax bill the next year. Several people claim zero dependents even though they have kids. So a tax credit to reduce taxes owed is of no interest to these people because they break even or get a little back from taxes.

If you have a job, you either had taxes withheld from your paycheck, you made quarterly tax payments as a self employed person, or you wait until April to pay all of it. If 1040, Line 24 = $7,500 or more, you can utilize the entire credit. It is based on Total Tax liability, not what you failed to pay.

If you put 0 dependents, then your company withheld more money all year long. In the end you probably get a refund. That person is eligible for the full $7,500 as long as the total federal liability for the year is at least $7,500. That person can get a $10,000 refund check, etc.

If you didn't withhold enough during the year, and your tax liability for the entire year was at least $7,500, then the full $7,500 can be used to offset it, (or a lesser amount if your total liability was less), and reduce the money you need to send to the IRS.

 

[texas_star_TM3]

Because as I said in my original post, the Model Y is egregiously overpriced for current market conditions and Tesla needed to reduce uncertainty and stimulate sales to prevent a disastrous quarter.


Good questions, however I can surmise lots of different explanations that are more feasible than “typo”.

the ID.4 is under $55k (...) it would qualify regardless.

 

[BitJam]

This argument kinda reminds me of the expression that it is expensive to be poor. If folks can’t afford it today, it won’t matter how future proof something is.

There is no similarity. BEVs will be cheaper than PHEVs in a few years. We should not provide massive subsidies to get people to buy out-dated technology now when the cost of the newer, better technology is falling exponentially. The smart move would be to encourage people to keep using their current car, if they can, for a few more years. Instead we are encouraging them to ditch their current car, get a new car that is not much better, and then probably ditch that car in a few years. This insanity only benefits big auto and the corrupt UAW.

 

[texas_star_TM3]

There is no similarity. BEVs will be cheaper than PHEVs in a few years. We should not provide massive subsidies to get people to buy out-dated technology now when the cost of the newer, better technology is falling exponentially. The smart move would be to encourage people to keep using their current car, if they can, for a few more years. Instead we are encouraging them to ditch their current car, get a new car that is not much better, and then probably ditch that car in a few years. This insanity only benefits big auto and the corrupt UAW.

the smart move for Tesla and Ford would be to offer a "SUV" for $55k or under... just like VW does with the ID.4 (hence the ID.4 qualifies). Or offer a large SUV like the Model X for under $80k.

The intent of the legislation is to push for affordable EVs within reasonable price ranges. Claiming that a Model Y or Mach E should fall under the "up to $80k" limit while the Model 3 falls under the "up to $55k limit" isn't reasonable at all and the Model Y isn't really a $65k vehicle and definitely not a $80k vehicle...

Additionally - the $80k limit is intended for "SUVs, pickup trucks, and vans" which are typically large vehicles and hence more costly. The Mach E and Model Y are slightly lifted cross-overs but definitely no pickup truck or Van...

 

[SageBrush]

There is no similarity. BEVs will be cheaper than PHEVs in a few years. We should not provide massive subsidies to get people to buy out-dated technology now when the cost of the newer, better technology is falling exponentially. The smart move would be to encourage people to keep using their current car, if they can, for a few more years. Instead we are encouraging them to ditch their current car, get a new car that is not much better, and then probably ditch that car in a few years. This insanity only benefits big auto and the corrupt UAW.

The drop in costs is predicated on ever increasing scale. If people stop buying EVs the price curve is frozen

 

[randmness]

There is no similarity. BEVs will be cheaper than PHEVs in a few years. We should not provide massive subsidies to get people to buy out-dated technology now when the cost of the newer, better technology is falling exponentially. The smart move would be to encourage people to keep using their current car, if they can, for a few more years. Instead we are encouraging them to ditch their current car, get a new car that is not much better, and then probably ditch that car in a few years. This insanity only benefits big auto and the corrupt UAW.

Of course there is similarity. People shopping for vehicles will buy what they can afford...today. Whether cheaper BEVs are next year, three years, or ten years away is inconsequential to folks that need a car today. This is also completely ignoring the challenges of lacking L2 charging at home.

Secondly, it's going to be years before the supply chain can support current auto purchasing needs. We've been discussing the MSRP caps, but the IRS has yet to publish its full battery components and materials sourcing guidelines. The shift to these yet-to-be-built refining and cell factories, from established places (like China), could very well increase prices and/or reduce manufacturing capacity for credit qualifying vehicles.

Thirdly, the credit is there to encourage folks who need a car, to pick a more efficient vehicle. No one is encouraging the general public to ditch their current car; see Fed interest rate hikes.

 

[AndrewZ]

The intent of this legislation is really more about bringing battery supply chains onto our shores and the shores of partners, and it needs to start happening yesterday. If including PHEV batteries helps achieve that, I think the government will be all for it.

There is much we could discuss in speculating how this will unfold and I feel like many people are making assertions without fully understanding the bill. Starting next January, a vehicle will be disqualified from the credit entirely if it contains any battery components from China and the other foreign entities of concern. Start January 2025, a vehicle will be disqualified from the credit entirely if it contains any critical battery minerals from foreign entities of concern.

Everyone is busy frantically fighting the MSRP fire right now but just wait until the end of year approaches and more people clue into this other shoe that's about to drop: the number of vehicles qualifying for any of the credit will almost surely plummet regardless of MSRP, the material sourcing requirements are the really onerous aspect.


I question how many vehicles even Tesla can produce next year that will entirely lack Chinese battery components. Batteries produced in 2025 without any critical minerals from foreign entities of concern, those will likely be even fewer and further between.

 

[SageBrush]

How do we live in a world where people buying $60,000+ EVs don't have the foggiest idea of how taxes work?

I've been trying to think of a way to make this piece of the tax code less prone to misunderstanding. I think the issue is that people do not understand the IRS term 'tax liability.' I think of it as an invoice, or a bill.

I may have paid none, some, all, or more than the invoiced amount, but that does not change the invoice. However, the invoice can change. I can be offered a conditional reduction on the invoice -- say, if I buy an EV. That would be a tax credit.

There are two additional parts to the EV tax credita:

1. The most my tax liability can be reduced is by $7,500
2. The tax liability will not go below 0

Example:
Say the IRS invoiced me for $1,200, and i pay $1,500. i overpaid my invoice by $300, and that sum will be refunded
Now lets say the IRS changes its mind and decides that the invoice is $500. i overpaid by $1,000, and that sum will be refunded.

Or maybe happy days: The IRS decides that every invoice will be reduced by up to $2,000 but the invoice will never be negative. Now the invoice is $0, and the $1,500 overpayment will be refunded.

 

[Snow Drift]

I've been trying to think of a way to make this piece of the tax code less prone to misunderstanding. I think the issue is that people do not understand the IRS term 'tax liability.' I think of it as an invoice, or a bill.

I may have paid none, some, all, or more than the invoiced amount, but that does not change the invoice. However, the invoice can change. I can be offered a conditional reduction on the invoice -- say, if I buy an EV. That would be a tax credit.

There are two additional parts to the EV tax credita:

1. The most my tax liability can be reduced is by $7,500
2. The tax liability will not go below 0

Example:
Say the IRS invoiced me for $1,200, and i pay $1,500. i overpaid my invoice by $300, and that sum will be refunded
Now lets say the IRS changes its mind and decides that the invoice is $500. i overpaid by $1,000, and that sum will be refunded.

Or maybe happy days: The IRS decides that every invoice will be reduced by up to $2,000 but the invoice will never be negative. Now the invoice is $0, and the $1,500 overpayment will be refunded.

Just tell them to look at their previous year's 1040, Line 24. If it is $7,500 or more, they will most likely get the full credit this year.

People can't comprehend that Total Tax liability is the complete amount of taxes they will pay, vs owing some money in April. You can get your normal refund and the credit, to provide a giant refund check.

 

[SageBrush]

Just tell them to look at their previous year's 1040, Line 24.

That is exactly what I tell people, but it does not help those people who have internalized a misunderstanding.

 

[Snow Drift]

GM isn’t happy either. Lyriq is apparently a car too.

GM wants U.S. Treasury to reconsider tax credits for Cadillac Lyriq EV

The Treasury and Internal Revenue Service did not classify the Lyriq as an SUV, meaning its retail price cannot be above $55,000 to qualify for up to $7,500 in federal tax credits.

www.autoblog.com

 

[ItsNotAboutTheMoney]

That is exactly what I tell people, but it does not help those people who have internalized a misunderstanding.

Maybe it should be called your How-Much-You-Should-Have-Paid-In-Taxes.

 

[texas_star_TM3]

GM isn’t happy either. Lyriq is apparently a car too.

GM wants U.S. Treasury to reconsider tax credits for Cadillac Lyriq EV

The Treasury and Internal Revenue Service did not classify the Lyriq as an SUV, meaning its retail price cannot be above $55,000 to qualify for up to $7,500 in federal tax credits.

www.autoblog.com

Fine by me… Y or Mach E or Lyriq aren’t real SUVs (with comically low ground clearance and/or platform based on a sedan) and definitely NOT worth up to $85k …. If Tesla can get the Model X with air suspension and some SUV capabilities under $85k… then more power to them and it would qualify

 

[ucmndd]

GM isn’t happy either. Lyriq is apparently a car too.

As it should be, just like the Model Y and others.

 

[Snow Drift]

As it should be, just like the Model Y and others.

If it looks like a duck… it’s an SUV.


Just amend the $80k rule to include Trucks, Vans, SUVs and Crossovers.

Crossover covers lifted everythings.

 

[Snow Drift]

Fine by me… Y or Mach E or Lyriq aren’t real SUVs (with comically low ground clearance and/or platform based on a sedan) and definitely NOT worth up to $85k …. If Tesla can get the Model X with air suspension and some SUV capabilities under $85k… then more power to them and it would qualify

Outside of Jeep, Subaru, Rivian, Bronco and 4Runner, just about no CUV/SUV today has enough ground clearance or grunt to be a real SUV.

 

[ucmndd]

If it looks like a duck… it’s an SUV.

Because the marketing department says so?

Nah.

Better option - eliminate the $80k MSRP tier entirely.

 

[texas_star_TM3]

Because the marketing department says so?

Nah.

Better option - eliminate the $80k MSRP tier entirely.

Agreed. I don’t think we should subsidize EVs with prices north of $55k tbh… if you can afford a $66k model Y … great. No subsidy needed.

 

[texas_star_TM3]

Outside of Jeep, Subaru, Rivian, Bronco and 4Runner, just about no CUV/SUV today has enough ground clearance or grunt to be a real SUV.

Model X and Rivian SUV have 8” or more clearance in highest setting. Those classify as SUVs …. Not the IRS problem that Tesla wants 6 figures for a Model X and well above $80k