After much wailing and gnashing of teeth, we're learning which electric vehicles qualify for the 2023 federal tax credit, and Volkswagen has confirmed that the ID.4 compact crossover is one of them.
It's the only foreign automaker with a vehicle that's eligible for the full credit. That's great for Volkswagen but a kick in the teeth for Nissan, Hyundai, and Kia and their popular range of electric vehicles. The Hyundai Ioniq 5, for example, was named World Car of the Year.
The current administration is pushing for more electric cars to be built by US workers by changing the qualifications for the federal $7,500 tax credit when buying a new EV. The rules include the percentage of parts used to build the battery, the percentage of minerals in the battery, and the maximum price. The percentage of American-sourced components will increase every year, starting at 40% and 50%, respectively.
By taking the tax credit into account, Volkswagen can now boast that the ID.4 becomes as affordable as a regular compact crossover. It takes the base $38,995 MSRP down to $31,495. This makes the ID.4 more competitive against ICE rivals like the RAV4, which starts at roughly $28,000 and goes up to $38,00.
"This is great news for consumers in the US because it expands the choice of truly affordable EVs," said Pablo Di Si, President and CEO of Volkswagen Group of America. "The ID.4 is already one of the lowest-priced electric SUVs on the market, and the $7,500 Federal Tax Credit makes it even more attainable. This shows that we made the right decision to localize production of the ID.4 in Tennessee and invest even further in battery production, components, and innovation.
Is it such great news for US consumers, though?
Our Take: A Mixed Bag
While the Biden administration's latest set of conditions as part of the Inflation Reduction Act may goad manufacturers into building more models here in the US, it hurts consumer choice (at least in the short term) as a $7,500 tax credit is a lot to miss out on.
Restricting choice for price-sensitive Americans also hurts the Democrat's push to get more people into all-electric vehicles. In the longer term, it could hurt brands like Kia and Hyundai to the point they do what Toyota and a few other brands are doing while waiting to see how the EV game works out, and concentrate on hybrid and plug-in hybrid models, further confounding the move to electric vehicles.
It's also worth noting that 2023's qualifications rewards Tesla but hurts new American automakers who need to start at a higher price. None of Lucid or Rivian's vehicles qualify due to cost. To qualify, the vehicle's manufacturer suggested retail price (MSRP) can be at most $80,000 for vans, sport utility vehicles, and pickup trucks or $55,000 for other vehicles. Lucid's cars, Rivian's truck, and SUV all start at $80,000 or over.
While we understand and approve of what the new qualifications seek to achieve, we can't help but feel consumers have got the dirty end of the stick here.