US: Toyota Sold Over 200,000 Plug-Ins, Triggering Federal Tax Credit Phaseout

Toyota has recently reached the milestone of delivering 200,000 new plug-in electric cars in the US, which means the phaseout of the federal tax credit incentive will begin.

The Japanese manufacturer is not the first one, as Tesla and General Motors also exceeded the limit a few years ago (respectively in Q3 2018 and Q4 2018). We knew that it was coming after the last quarter of 2021. A slower than expected Q1 2022 prolonged waiting, but it ultimately happened in Q2 2022.

200,000 plug-ins achieved in Q2 2022

According to our data, between February 2012 and June 30, 2022, Toyota delivered 205,785 plug-in electric cars (including Prius PHEV/Prius Prime, RAV4 Prime, a small number of RAV4 EV, and 232 units of the all-new bZ4X). By the end of Q1 2022, the number was 197,866, which clearly suggests that the 200,000th plug-in vehicle has been sold in Q2.

On top of that comes a small number of Lexus plug-in cars (1,734 NX 450h+, including 1,111 in Q2), counted – as far as we know – together with Toyota’s brand (as a single manufacturer). However, regardless of Lexus’ volume, it does not change that the limit was reached in Q2.

The fact that Toyota has hit the mark of 200,000 units has been recently noted also by Bloomberg, which says that it confirmed the data with the company.

Separately, by the end of Q2 2022, Toyota also sold 10,632 hydrogen fuel cell Mirai, but FCEVs were not included in the federal tax credit program (there was a separate Fuel Cell Motor Vehicle Tax Credit).

What now? The last quarter of $7,500 eligibility?

Assuming that Toyota reached the 200,000 limit in Q2, the full amount of the federal tax credit of $7,500 will be available for new Toyota/Lexus cars through the end of Q3 (September 31, 2022), then halved for two more quarters, and then halved again for another two quarters.

We are waiting for the IRS to announce the official subsequent phaseout schedule for Toyota.

Starting on October 1, 2023, Toyota will be in the same position as Tesla and GM today, without eligibility for any tax credit.

How it works in general:

The federal tax credit amount is up to $7,500 per car (the full amount is for plug-ins with a total battery capacity of at least 16 kWh). The minimum requirement is at least 4 kWh battery and capability to recharge from an external source of electricity.

After officially reaching 200,000 units, the full amount is available through the end of the particular quarter, during which the limit was reached, and for the following quarter (so for 3 to 6 months, depending on the date of reaching the limit). Then, the amount will be decreased to 50% for another two quarters (up to $3,750) and to 25% for the final two quarters (up to $1,875).

Here is how it was in the case of Tesla and General Motors, which have not been eligible for the incentive for a few years now.

Future of the federal tax credit

Toyota (and some other manufacturers: GM, Ford and Stellantis) have been lobbying to extend tax credits – through lifting the cap of 200,000 cars, counted separately for each manufacturer, and setting a general sunset date for the entire market.

A general incentive actually should’ve been implemented right from the start, because the current system does not promote the companies that started early to build the market. It already caused the two largest domestic players – Tesla and General Motors – to be no longer eligible for the incentive for a few years. A different issue is that the incentive is a tax credit rather than a rebate at the point of sale.

There are also other ideas of increasing the amount for union-made EVs (criticized by manufacturers, including Toyota, Volkswagen and Tesla) or offering it only for EVs built in the US (it raised opposition from Canada and other countries). Tesla’s CEO Elon Musk appears to be against incentives right now, as Tesla is profitable without incentives.

Considering the inflation, the amount set at up to $7,500 more than a decade ago, already is devaluated and does not mean as much as previously.

Source: Bloomberg

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