The new tax credit rules are going to make it harder to buy electric vehicles

The Inflation Reduction Act's tax credits for electric vehicles will take effect after President Joe Biden signs it, but VW cannot guarantee that it's ID.4 compact electric SUVs will qualify. It's not the only automaker that's confused.

In order to qualify for the $7,500 tax credit, EVs must be assembled in North America using components and supplies sourced domestically or from official trading partners. In light of the fact that the majority of EV batteries are sourced from China, the new rules effectively disqualify the vast majority of EVs on the road.

In an email to customers, Volkswagen states it expects the model years 2022 and 2023 ID.4s to meet the new requirements, but it cannot guarantee it. The automaker is urging its customers to enter into a 'written binding contract to purchase in order to qualify for tax credits as a result of the uncertainty.

Several months before the new tax credits take effect, Volkswagen is pushing binding contracts over reservations. In addition to BMW and Audi, Rivian and other companies are also advising their customers to sign purchasing agreements in order to qualify for old tax credits that don't require North American manufacturing or assembly.

The Inflation Reduction Act includes a 'transition rule' that allows customers to take advantage of the old tax credit when they purchase a new electric vehicle with a 'written binding contract for purchase' before the law goes into effect, even if the vehicle is delivered after the law is passed.

An electric vehicle customer could put down a refundable deposit - usually, a couple of hundred dollars - before these changes went into effect. Due to the bill's vague language, reservations aren't explicitly covered, so automakers are encouraging customers to sign binding contracts.

The bill does not explicitly mention reservations. According to the Alliance for Automotive Innovation, the main lobbying group for the auto industry, 72 electric vehicles are currently available in the United States, including battery-powered, plug-in hybrid, and fuel cell models.

In the event that the bill passes, 70% of those models will not be eligible for the tax credit. In addition, none of the companies would be eligible for the full credit when the additional sourcing requirements take effect in 2029.

In its assessment of the bill, the National Automobile Dealers Association concurs with that of the auto industry. After President Obama signs this new law, the group advises dealers to contact OEMs to ascertain which electric vehicles are no longer eligible for the credit.

Electric vehicle sales are at their highest points in history, but uncertainty about the new tax credits might deter customers, especially if they are forced to sign contracts for vehicles they may not even want.