The Clock Is Ticking, Toyota Closes in On EV Federal Tax Credit Limit

Ever since the Federal Tax Credit for buying hybrid or EV models, the clock has been ticking on the end of this incentive. For the past decade, one way automakers justified the higher price of these gas-saving vehicles was to give us this credit on our tax returns. A cap placed on this incentive creates a unique future for automakers as Toyota becomes the next automaker to pass over the 200,000 model threshold for the EV Federal Tax Credit.

When will Toyota pass the limit?

The 2022 Toyota Prius Hybrid is one of the cars that could be impacted by a reduced EV Federal Tax Credit. Toyota is close to passing the 200,000 vehicle threshold.
2022 Toyota Prius Hybrid | Toyota

Sometime during the next month, we will see the 200,000th Toyota model sold that is either an EV or a hybrid vehicle. It could be a Lexus model or one of the many Toyota vehicles that give us the fuel-sipping we enjoy, but it will happen soon. Once that model heads home with a new owner, the incentive decreases for future hybrid and EV Toyota customers.

How much will the EV Federal Tax Credit decrease?

Once an automaker reaches the magic number, the credit decreases by half every six months. Currently, the credit is $7,500 from the federal government. Once Toyota reaches this mark, customers will receive a credit of $3,750 for hybrid and EV models. While still a large number, this might not be enough to offset the higher prices of hybrid and EV vehicles.

How many qualifying models have Toyota sold?

A gray 2023 Toyota bZ4X electric SUV is parked.
The Toyota bZ4X | Toyota

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According to Inside EVs, the qualifying number of models sat at 198,000 as of the end of March. This total is a combination of Toyota and Lexus hybrid and EV models. It won’t be long before these two brands sell an additional 2,000 vehicles, and then the full credit is over for Toyota customers.

Where do other brands sit regarding this tax credit?

Both Tesla and GM reached the 200,000 EV/hybrid mark in 2018. Since then, no other automaker hit that magic number, but Toyota is next. Once we see them pass this number, Ford should follow later in 2022, with Nissan reaching this same level by the middle of next year. While these dates are all predictions from EV Adoption, they tell us the major brands will no longer have the full tax credit to offer customers.

Isn’t there a strong push to build more EVs?

The 2022 Toyota Camry Hybrid XSE midsize sedan in silver with a black roof which gets excellent gas mileage
2022 Toyota Camry Hybrid XSE | Toyota

One of the first actions taken by the current presidential administration was to build toward an all-electric fleet of government vehicles. The Build Back Better bill is currently in Congress and continues to be argued and tweaked in many ways. With many automakers pushing to sell more than 50 percent all-electric vehicles by 2030, the federal government needs to do something to incentivize shoppers to buy these new electric models.

Will Toyota lower prices, or will we see a new tax credit?

Part of the Build Back Better bill is a package that incentivizes hybrid and EV model purchases. This could be the answer for all automakers facing the end of the full $7,500 EV Federal Tax Credit. Until this new bill passes, Toyota can continue to entice customers by dropping prices by the difference they lose in the tax credit. This might be a bit of wishful thinking, but it’s an idea.

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