New federal EV tax credit rules have set price caps that are narrowing the field of qualifying EVs, but a leasing loophole is already opening up a much wider field eligible for federal subsidies.

The Inflation Reduction Act (IRA) re-upped the federal EV tax credit of up to $7,500 for qualifying vehicles. It added price caps of $55,000 for cars and $80,000 for pickup trucks and SUVs.

That nominally excludes luxury EVs like the Lucid Air and Tesla Model S, if you buy them.

Luxury brands are already at work on the leasing workarounds that may, conveniently, help counteract rising interest rates.

One such example came last week, in the form of an email to owners posted on the Lucid Forum. Lucid said customers leasing an Air through its financial-services arm “will receive an automatic $7,500 in savings in the form of a capital cost reduction.”

2022 Lucid Air Grand Touring Performance2022 Lucid Air Grand Touring Performance

That discount isn’t simply Lucid trying to make up for a federal tax credit its expensive EVs don’t qualify for. It’s the result of the Internal Revenue Code 45W deduction, otherwise known as the Commercial Clean Vehicle Credit, and possible wherever the automaker has a captive or affiliated finance company and can offer the vehicle under lease.

The 45W deduction allows businesses to claim a $7,500 credit for vehicles with a gross vehicle weight rating (GVWR) of under 14,000 pounds and up to $40,000 for heavier vehicles, depending on additional factors. If an automaker has a captive financing company, it can take the credit rather than the customer. In this case, Lucid, as it should, then passes the savings on in the form of a discount for lessees.

Lucid Air SapphireLucid Air Sapphire

The original concern with the leasing loophole was that it would again make EVs made overseas available for subsidy with taxpayer money, completely circumventing a big reason why the tax credit was revamped by Congress in the first place. Now it’s also clear that 45W applies to vehicles regardless of sticker price—reducing the urgency that price caps added to the 30D tax credit that applies to purchases.

It also means that while the Lucid Air Sapphire is due to cost $249,000 before destination, if it’s offered under a lease, it will qualify—if Lucid so chooses to offer it under lease.

Tesla is not yet indicating that it’s claiming the $7,500 tax credit in its leases, so there might be an adjustment yet to come. Many more adjustments are likely on the way from other brands.

It’s hard to imagine anyone leasing an EV—including companies with such a product—not taking advantage of such a deal. That begs the question as to whether this is what the authors of the bill intended. With much of the tax-credit language rewritten in the weeks leading up to the IRA’s passage last August, that may remain unclear.

Related Articles