The Japanese automaker enjoyed an important advantage that allowed it to attract consumers interested in less polluting vehicles.
The Japanese automaker has enjoyed a big advantage for a long time, enabling it to seduce consumers interested in less polluting vehicles. This advantage has just disappeared at the worst time for the vehicle manufacturer, which has chosen a different strategy in electrification compared to its main rivals.
Toyota has announced that it recently sold its 200,000th clean vehicle — plug-in vehicles + electric vehicles — in the United States. If this sale is good for the revenues and possibly the margins of the company it has important consequences.
The sale triggers the phaseout of the federal EV tax credit over the next 15 months. Toyota thus becomes, after Tesla (TSLA) – Get Tesla Inc. Report and GM (GM) – Get General Motors Company Report, the third car manufacturer to find itself in this situation.
The Phaseout Will Begin on October 1
In 2009, former President Barack Obama set an ambitious goal of putting 1 million advanced technology vehicles on the road by 2015 – which would reduce dependence on foreign oil and lead to a reduction in oil consumption of about 750 million barrels through 2030.
Obama proposed to transform the existing $7,500 federal tax credit for electric vehicles into a rebate that will be available to all consumers immediately at the point of sale. Tesla, which was one of the few vehicle manufacturers to develop only vehicles, took full advantage of this aid.
But that tax credit was to start disappearing once the automaker had sold its 200,000th qualifying. The credit was first to be reduced to $3,750, then to half again, and finally the aid was to disappear over a period of time.
The phasing out of this federal tax credit begins two quarters after the automaker sold the 200,000th clean vehicle. In the case of Toyota, consumers interested in eligible vehicles will see this credit reduced to $3,750 starting October 1. Four months later, that is to say on April 1, 2023, this tax credit will drop to $1,875 and it will completely disappear six months later.
Tesla sold its 200,000th vehicle in 2018, and the credit fully expired at the end of 2019. Electric vehicle buyers interested in the Chevy Bolt and Chevy Bolt EUV from GM will receive nothing because the company lost the aid in 2019.
In general, vehicles benefiting from this federal tax credit must be battery-electric or plug-in hybrids and purchased– not leased — as new vehicles.
It is based on battery capacity beyond a standardized minimum, so some plug-in vehicles qualify for lesser amounts.
The loss of this aid comes at a very bad time for Toyota as the information comes just weeks after the vehicle manufacturer began selling its new electric SUV, the bZ4X, in the United States. The debut of this vehicle was marked by a recall launched on June 23 by the car manufacturer for a safety issue. Hub bolts on vehicle wheels can loosen and cause wheel detachment hazards. About 2,700 vehicles are affected, Toyota said.
On June 13, the CEOs of GM, Ford and Stellantis (STLA) – Get Stellantis N.V. Report, the parent company of Chrysler, and the boss of Toyota in North America urged Congress, in a letter, to lift the EV tax credit cap to encourage consumer adoption of green cars and trucks.
“The coming years are critical to the growth of the electric vehicle market and as China and the EU continue to invest heavily in electrification, our domestic policies must work to solidify our global leadership in the automotive industry,” the letter states.
The letter also notes that the four companies have pledged to invest more than $170 billion through 2030 to bolster EV development, production and sales, including near-term investments of more than $20 billion in the U.S.
It was signed by GM CEO Mary Barra, Ford CEO Jim Farley, Stellantis CEO Carlos Tavares and Toyota North America CEO Tetsuo Ogawa.
But Toyota, Tesla and GM and other automakers with nonunion workforces in the U.S. opposed a tax credit program last year by the Biden administration that included additional credits for EVs built by organized labor.
One of the big opponents of the federal tax credit is Elon Musk, the CEO of Tesla.
“Tesla is at a competitive disadvantage with respect to tax credits,” Musk said during a recent interview. “That is quite significant when you’re talking about like, say a $40,000 car and a $7,500 tax credit. That’s like almost a 20% difference. So big deal.”
“If you eliminated all EV tax credits, Tesla’s position will improve immediately.”