Toyota Becomes 3rd Automaker to Reach Electric Vehicle Tax Credit Limit

Based on sales, other automakers will follow soon. Move quickly to get your electric Toyota because the tax credit phase-out starts this October.

Toyota bZ4X

By Jon Linkov

If you are looking to buy a plug-in hybrid electric vehicle (PHEV) or an electric vehicle (EV) from Toyota, you should do so before the end of September to take full advantage of the available $7,500 federal tax credit.

Toyota has become the third automaker, after Tesla and General Motors, to sell more than 200,000 plug-in electric vehicles, the threshold set by Congress for each automaker before triggering a phase-out period for the credit. The incentive was created to prompt automakers to produce and consumers to buy alternative-fuel vehicles. The credits reduce over time and disappear entirely one year after an automaker reaches the sales milestone.

Toyota hit this figure shortly after the CEOs of Ford, GM, Stellantis, and Toyota sent a joint letter to Congress urging legislators to lift the limit on the number of vehicles that are eligible for the federal tax credits. Toyota reached the limit mostly from sales of its Prius Plug-in, Prius Prime, and RAV4 Prime PHEVs and the older RAV4 EV.

Unless Congress acts, more automakers will push through the threshold, meaning that consumers will have fewer options for claiming the credit.

“Congress has proposed making the credit refundable at the time of purchase, and removing the per-automaker cap, to make the credit less confusing and more equitable,” says Mary Greene, CR’s senior policy council for CR’s sustainability policy team. “These would be positive changes for consumers. Unfortunately, if they don’t act, the tax credit situation will only become more confusing in the future as more automakers hit the cap and begin to phase out eligibility.”

To help you find and apply for available incentives, Consumer Reports has created the Electric Vehicle Savings Finder, which highlights local and federal incentives and tax rebates. It’s based on your ZIP code and the model you’re researching. This feature is part of our free membership at CR.org, requiring just an email address to access. You can sign up here for a free membership.

Partial Credit

Starting Oct. 1, the federal tax credit will begin to phase out for future Toyota PHEV and EV buyers, though they will still be eligible for a partial credit. The phase-out period commences with the start of the second calendar quarter after Toyota has sold its 200,000th eligible plug-in EV.

According to Bloomberg, Toyota met the threshold in June, so the second calendar quarter after that starts Oct. 1. A Toyota spokesman told CR that any Toyota vehicle eligible for government incentives sold on or before Sept. 30 will receive the full federal tax credit of up to $7,500. Beginning Oct. 1, purchases will qualify to receive up to 50 percent of the federal tax credit ($3,750). An additional decrease of the federal tax credit will then take place April 1, 2023, before being completely phased out in October 2023.”

For consumers who are buying a Toyota bZ4X EV, the only way to claim the full $7,500 tax credit is to take delivery of and register it prior to Oct. 1. This means that the Subaru Solterra, which is almost identical to the bZ4X but officially sold by Subaru, will effectively be less expensive to buy because Subaru has sold only one model that qualified for credits, the Crosstrek Hybrid, and it sold in relatively small numbers, far fewer than 200,000 units.

“If you have an order in for a bZ4X that will arrive later this year, you may want to switch it to a Solterra in order to take advantage of the full tax credit,” says Gabe Shenhar, associate director of CR’s Auto Test Center. “The only difference between the two EVs is that the Solterra is all-wheel drive, while the bZ4X is available with front-wheel drive. Otherwise, they’re essentially the same.”

Other Automakers Soon to Follow

Nissan is another company likely to hit the 200,000-unit threshold this year or sometime next year. A Nissan spokesperson told CR that the automaker has sold just over 170,000 Leaf EVs since the model was launched in late 2010. Nissan has an all-new EV, the 2023 Nissan Ariya, that will be available later this year. It will qualify for the full $7,500 tax credit.

Nissan has dropped the base price of the Leaf to $27,400, and Hyundai dropped the base price of its Kona Electric EV to $34,000, making these two of the least-expensive new EVs for sale. The Leaf and Kona Electric qualify for the full $7,500 federal tax credit. While Chevrolet has dropped the base price for its Bolt and Bolt EUV EVs to $26,595 and $28,195, respectively, GM vehicles no longer qualify for the federal tax credit, having reached the full phase-out period in 2020.

Ford, which has sold various PHEV models and the new Mustang Mach-E EV, is also approaching the threshold. The automaker did not respond to our request for comment.

A Credit, Not a Refund

The tax credit was available starting in 2010 and begins at $2,500. It increases $417 for a vehicle with at least 5 kilowatt-hours (kWh) of battery capacity. The credit further expands by $417 for each kWh of battery capacity beyond that, topping out at $7,500. You can read the full description of the calculations involved with the credit and the phase-out period here.

A buyer must have a tax liability to take advantage of the available tax credit. For example, if you buy a bZ4X (which currently is eligible for the full $7,500 credit), and you have a $4,500 tax liability, you will receive $4,500 of the credit; you don’t receive any unused portion of the credit (in this hypothetical case, $3,000).

Lessees of plug-in vehicles are not eligible for the credit, but they can still save money. Even though the manufacturer received the tax credit, consumers should make sure that the full credit is applied to lower the vehicle’s price, so you save money on your payments.

It is a wise decision to talk with your accountant or a tax professional prior to purchasing a PHEV or an EV to make sure you understand how to take full advantage of the available tax incentives.



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