2024 EV Tax Credit: Will It Be Reduced in Future Years?

The electric vehicle (EV) revolution is in full swing, and governments worldwide are incentivizing consumers to make the switch from gas-powered cars to cleaner alternatives. In the U.S., the federal EV tax credit has been a major driver of adoption, offering up to $7,500 in savings for qualifying vehicles. But as we move into 2024 and beyond, many are wondering: Will the EV tax credit be reduced in future years?

The Current State of the EV Tax Credit

Under the Inflation Reduction Act (IRA) of 2022, the federal EV tax credit underwent significant changes. Previously, the credit was capped at 200,000 vehicles per manufacturer, which meant companies like Tesla and GM had already exhausted their eligibility. The IRA removed this cap but introduced new requirements, including:

• Final assembly in North America
• Battery component sourcing from the U.S. or free-trade partners
• Income limits for buyers

For 2024, the credit remains at $7,500 for eligible new EVs and $4,000 for used EVs, but future adjustments could be on the horizon.

Why the EV Tax Credit Might Be Reduced

1. Budgetary Constraints and Political Shifts

The federal government’s ability to sustain tax incentives depends on economic conditions and political priorities. If budget deficits grow or if a new administration takes office with different energy policies, the EV tax credit could face cuts.

2. Increasing EV Adoption

As more consumers switch to EVs, the cost of the tax credit program rises. If the market reaches a tipping point where EVs no longer need subsidies to compete, lawmakers may argue that the credit is no longer necessary.

3. Stricter Eligibility Requirements

The IRA already tightened sourcing rules for battery materials. Future legislation could further restrict which vehicles qualify, effectively reducing the number of cars eligible for the full $7,500 credit.

4. State-Level Incentives Filling the Gap

Some states, like California and New York, offer additional rebates on top of the federal credit. If state programs expand, the federal government might reduce its contribution.

What Automakers and Buyers Should Watch For

H3: Changes in Battery Sourcing Rules

Starting in 2024, an increasing percentage of battery components must come from the U.S. or approved trade partners. If automakers struggle to meet these requirements, fewer vehicles will qualify for the full credit.

H3: The Role of Used EVs

The used EV credit ($4,000) is a newer addition, and its future depends on how well it drives adoption. If demand for used EVs surges, policymakers may keep it—or even expand it.

H3: Leasing Loopholes

Some automakers have exploited a loophole where leased EVs qualify for the credit even if they don’t meet IRA requirements. If this becomes too widespread, regulators may crack down, reducing access to incentives.

The Global Context: How Other Countries Are Handling EV Incentives

While the U.S. debates the future of its EV tax credit, other nations are also adjusting their policies:

• Europe: Several countries are phasing out EV subsidies as adoption grows.
• China: Still heavily subsidizing domestic EV production, creating competitive pressure.
• Canada: Expanding incentives to match U.S. efforts.

If global trends shift toward reducing subsidies, the U.S. may follow suit.

Final Thoughts for EV Shoppers

If you’re considering an EV purchase, 2024 might be the best year to act. With potential reductions looming, locking in the current tax credit could save you thousands. Keep an eye on legislative updates and be prepared to move quickly if changes are announced.

The future of the EV tax credit remains uncertain, but one thing is clear: The transition to electric vehicles is accelerating, and government incentives will play a crucial role in shaping the market for years to come.