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Toyota's Federal EV Tax Credits Are Drying Up

Toyota’s Federal EV Tax Credits Are Drying Up

  • Toyota is finally launching a mass-market, battery-electric vehicle—the bZ4X—just as it is about to trigger a phase-out of federal EV tax credits.
  • Toyota is reaching the 200,00-vehicle limit thanks to strong sales of its plug-in gasoline-electric hybrids, both the Prius Prime and the RAV4 Prime.
  • If you’re interested in a RAV4 Prime or a bZ4X, you should still be able to get the full credit of $7500 until October of this year.

    Toyota has long made a big deal about the Prius name meaning “to go before.” When it comes to electric vehicles, though, Toyota is more accurately going third—at least in regards to it reaching the full limit federal tax credit on EVs and plug-in gasoline-electric hybrids (PHEV).

    At the end of 2021, 183,000 EV and PHEV Toyotas qualified for the federal tax credit, with another 8421 cars added to the ledger at the end of the first quarter of 2022, according to Automotive News. At this rate, Toyota expects to run out of these full credits—which are limited to 200,000 for each automaker before starting a gradual deduction reduction throughout the course of a year—sometime before the summer. Once Toyota hits this mark, its newest EV and PHEV buyer will be able to nab a tax credit worth half the maximum sum for six months, followed by a tax credit worth a quarter of the original sum for another six months. After that, Toyota EV and PHEV consumers will have to purchase these vehicles sans a tax incentive from the federal government.

    “We’re planning for it, because Tesla’s out, and General Motors is out, and we’ll be out probably in the second quarter,” Toyota Motor North America’s executive vice president of sales, Bob Carter, told Automotive News. “When you’re out, you enter a step-down phase down, so we’re planning for that.”

    On the one hand, reaching this milestone is a positive thing for Toyota. After all, this means the brand succeeded in selling 200,000 fully and partially electric vehicles. On the other hand, it’s a poor time for Toyota to be looking down the barrel of a tax credit phase-out.

    The brand is currently introducing its first dedicated battery-electric model across the United States (prior EVs that Toyota’s sold in the 21st-century have been limited to certain states), the bZ4X. As such, only a small batch of initial buyers will be able to take advantage of the full $7500 credit the vehicle qualifies for.

    Nissan, which is about to launch the Ariya electric SUV, is in a similar boat thanks to more than a decade of Leaf sales. Carter told Automotive News that Toyota is considering lowering the starting price of the EV in response to its federal EV tax credits expiration.

    If Toyota indeed hits the 200,000 level in the second quarter (before July 1), then all sales through the end of October of this year will still qualify for the full credit. Come November, though, the credit will drop to $3750, then to $1875 on April 1, 2023, which means Toyota will potentially hit the federal EV tax credit ceiling by October 2023.

    Despite just formally entering the EV space, Toyota’s popular Prius and RAV4 PHEV models managed to cut into the brand’s threshold of 200,000 sales of electric and partially electric vehicles. As a result of these models’ smaller battery packs, the plug-in Prius of 2012–2015 qualified for a $2500 tax credit, while 2017 and newer Prius PHEVs nab a $4502 credit. The RAV4, meanwhile, takes home the full $7500 … for now, that is.

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