When a lender originates a lease on a PHEV or EV that qualifies for the tax credit, they receive that tax credit the following year when they file their taxes. If the lender passes some or all of that through as a cap reduction at origination, they are essentially giving the lessee an interest-free loan on that money. And in today’s rate environment, that is a lot of interest income to eat.
Chrysler Capital on the 4XEs has been passing all of it through and has decided to continue that same strategy. Ally has elected to pass some amount on for several models but I am not sure what gas equivalent they are using to base the math on:
$5,644 on 22 Ford Escape PHEV
$5,255 on 22/23 Kia Niro PHEV
$7500 on 23 Kia Sorento PHEV
$6,179 on 22/23 Mitsubishi Outlander PHEV
$4,480 on 22 Toyota Prius Prime
$6,689 on 22/23 Toyota RAV4 Prime
US Bank, on the 4XEs chose to bump their RVs by $7,500 to have a similar effect on payment but resulted in higher interest portions of the payment. So far they haven’t elected to do that this year.
Ultimately the payment determines which lender gets the deal and each lender can pull either level to try and beat the other lenders on payment and originate the volume.
Tesla reduced the MSRP of their vehicles by $3750/7500 in December. Their vehicles were not eligible for tax credits in 2022. They should have started receiving tax credits on leases on Jan 1, based on current interpretation of the IRA.
helpful. can one go directly to a bank to start lease process for a car? for eg., how do I start w ally on this? I always have done it at the dealership typically through the manufacturer’s finance unit (E.g., ford finance etc.)
No income eligibility under the commercial use section of the IRA. This is the potential loophole that earners above the income thresholds are anxious to see come to fruition. No battery or minerals requirement, no income limits. But the leasing company also isn’t obligated to pass through the credits to the lessees.
Will those that call it exactly how the law is written sell insurance to the captive finance companies that don’t think the law is that clear? If 3.4M EVs are sold in 2023 (5% of 68M) and 680,000 of those EVs are leased (20%), you’re looking at $5.1B in tax credits for leased vehicles. If there are those that believe the law is crystal clear, then they should be willing to insure that $5.1B so the captives can have confidence in the credits…should be easy money, right?
I agree that the law is written such that leases should qualify. But being right doesn’t mean the IRS will agree.
Your assumptions are a little off. SAAR on new cars is expected to come in around 15M (not 68M which I’m assuming you came to by including used cars).
So 5% of 15M is 750k total EV/PHEVs sold this year and depending on the lease pen of this group. 20% is a pretty safe bet but it could go higher depending on how the lenders choose to push more volume to leases. That means 150k leased PHEV/EVs that get the $7500 credit. Some will be lower based on the comparison against equivalent gas models but we’ll stick with $7.5k for this. That makes it $1.125B.
I understand those figures on PHEVS are for Individual Taxpayers claiming the credit on there personal return under $30D.
For the $45W Commercial Clean Vehicle Credit for Business use Vehicles acquired (leasing companies) the IRS will be giving $7,500 on PHEVS on all bus subcompact and Micro cars (like Mini Coopers )
as the IRS will use the DOE Safe Harbor report.
The DOE Analysis calculated the incremental cost for compact car PHEVs, which
include minicompact and subcompact cars, to be less than $7,500. The Treasury
Department and the Internal Revenue Service (IRS) will accept a taxpayer’s use of the
incremental cost published in the DOE Analysis to calculate the § 45W credit amount for
compact car PHEVs placed in service during calendar year 2023.
That is until further guidance comes out in March.
I’m ready for some cheap EV leases. I’d settle for cheaper.