Electric vehicle tax incentives are a key piece of the Inflation Reduction Act (IRA) 2022. Widely recognized as the most important federal climate legislation in United States history, the IRA addresses many areas of concern. The bill reduces prescription drug costs, prevents higher health care costs, and provides incentives for businesses and private citizens to embrace energy-saving investments. To that end, electric vehicles, buses, and delivery vehicles have emerged as key components of this legislation. For example, The IRA contains tax incentives which include a new tax credit of up to $4000 on used electric vehicles put into service after December 2023.
Prior to this legislation many climate-conscious companies already recognized electric vehicles as a clean and effective solution to the large carbon footprint left by vehicles with internal combustion engines (ICES). Now, there is an even greater incentive for businesses to make electric vehicles an integral part of their supply chain. To better understand this shift from ICEs to electric vehicles this post will: 1) Explore the relationship between electric vehicles and the logistics industry 2) Examine the IRA tax credits and 3) Look at what it means for your business if you decide to purchase one.
What is the relationship between electric vehicles and the logistics industry?
Simply put, the logistics industry includes the sourcing of goods, manufacturing- such as the kind that we do here at The Waterways Company, inventory, transportation, etc. Traditionally, the primary transportation choice for many companies had been the delivery vehicles and trucks that use internal combustion engines. However, these vehicles are not safe for the environment because they release additional carbon dioxide into the atmosphere, which causes a reduction in air quality. Furthermore, there are no tax incentives for continuing to rely on ICEs to transport goods, freight, and packages. In comparison, electric vehicles have proven to be versatile and suitable for many kinds of freight transportation and parcel delivery. Due to their high maneuverability and small carbon footprint, they are ideal for last-mile delivery. Businesses also benefit from saving on maintenance costs and improving brand image.
What are the federal tax credits offered for electric vehicles in the IRA 2022 act?
Through the newly implemented IRA, the government has addressed the climate issue head-on by allocating more money and resources to combat climate change. Through federal tax credits on the US-owned electric vehicle companies, the market has gotten a strong foundation for a more sustainable, equitable, and secure transportation future. The federal government is offering a new tax credit of up to $4,000 on used electric cars and revised tax credits of up to $7,500 on certain new electric vehicles that will promote the production and sale of affordable mass-market electric vehicles.
In order to benefit from these tax incentives, the used electric vehicle must meet two criteria: First, the value must not go above $25000 coming from a dealership. Second, a business can only apply for a tax credit for a pre-owned electric vehicle that has been resold only once.
- This movement helps people from every part of the world by lowering the supply chain of batteries thus reducing their prices while promoting clean transportation.
- Promotes cost effective car/ transportation systems that will help consumers save money while supporting a good cause.
- The shift from ICEs, means automakers will have to manufacture clean energy electric vehicles. This will promote the creation of new jobs in the auto industry.
- Removing the previous manufacturing cap makes everyone eligible for the tax credits so long as they are buying from an American manufacturer.
Who is eligible to purchase an electric vehicle?
Since the federal tax credits are meant to help ensure the incentives go to those who need financial help the most and spur manufacturing, the tax credits will come with a few conditions:
- Income caps: From the moment that this act is implemented, only people with a certain amount of income per year will be able to qualify for these tax credits. For now, the income cap requires you to make no more than $150,000 a year — or $300,000 if you file jointly with a partner to benefit from this opportunity.
- Commercial clean vehicle credit– Businesses may be eligible for a new commercial clean vehicle credit. This tax credit will only be applicable to qualified commercial clean vehicles purchased on or after January 1, 2023. In order to qualify, the vehicle must have a gross vehicle weight rating of less than 14,000 pounds and have a battery rating of not less than 7 kilowatt hours. There is an exception for mobile machinery which can exceed the 14,000-pound weight limit but must have a battery capacity of not less than 15 kilowatt hours. The commercial clean vehicle credit is worth 30% of the cost, up to $7,500 for vehicles less than 14,000 pounds, or $40,000 for mobile machinery.
- Vehicle value: Once an electric vehicle has been identified by a customer the projected value of the electric vehicle will be assessed to determine tax credit eligibility. If you are buying a new vehicle, the maximum cost will be determined by the manufacturer’s retail price. For used cars, from 2023, you will be eligible if you buy one of the following vehicles:
- Smaller cars and sedans costing no more than $55,000
- SUVs, trucks and vans costing no more than $80,000
- Used vehicles costing no more than $25,000
What does purchasing an electric vehicle mean for your business?
Should you choose to switch to electric vehicle for your transportation/delivery system, below are some expected business benefits:
Compared to ICEs, the overall cost of electric vehicles has come down significantly. Within the last 12 months there has been a 13.4% price reduction. This means that many fleet vehicles already have a load and utilization profile that makes electric vehicles a cost- effective option. The cost of fueling an electric vehicle at a charging station is far more cost-effective than the traditional ICEs that require gasoline or diesel fuel. Maintenance costs are also reduced for two reasons. First, wear and tear on the vehicle’s brake system is lessened because of single-speed- transmission and regenerative braking. Second, due to their simple mechanical systems, electric vehicles require minimal regular upkeep, such as costly oil changes. Additionally, businesses that implement an at-work charging station protocol, improve productivity and allows drivers to start the day fully charged.
Due to their simple vehicle structure, electric vehicles are very efficient in terms of energy, torque and performance. Accordingly, the supply chain/logistics enterprises are finding that using an electric vehicle is more economical for last mile logistics than a gas-powered vehicle. This simple structure allows easy integration of modern technologies for fleet tracking and optimization.
In addition, when in stop- and- go city traffic, the absence of an exhaust system means less energy consumption. Hence, they operate smoothly and quietly which reduces both air and noise pollution in urban cities and other community areas. Finally, because of their high-quality performance and convenience, they are a compelling option for high-priority courier services.
The environmental benefits of using an electric vehicle cannot be overstated. They reduce the level of carbon dioxide in the air, produce no tailpipe emissions and reduce fossil fuel energy dependence. The Environmental Protection Agency (EPA) has identified that the transportation sector produces 29% of the country’s greenhouse gas emissions. A quarter of that number is because of gas and diesel-fueled trucks and vans. Electric vehicles are an ideal way to simultaneously fight pollution and help your business achieve financial success.
Moreover, businesses that offer electric vehicle charging infrastructure and utilize electric vehicles will enhance their environmental credentials. Increasingly, businesses are finding that customers have an expectation that they engage in socially and environmentally responsible practices.
Create new revenue sources
Electric vehicle charging points can function as an additional source of revenue. Particularly in the case of consumer businesses such as retailers and leisure companies. On-site charging is more likely to encourage customers to spend a longer time in the store, while their car recharges. Consequently, they spend more.
Increase employee satisfaction
Investing in employee wellness is always a prudent move. Utilizing electric vehicles means improved health and safety for employees because they enhance air quality and reduce exposure to NO2 and other harmful substances. To that end, vehicle emissions constitute 80% of smog causing air pollution. Vehicle emissions have been linked to asthma, heart and lung disease, dementia and some cancers. Additionally, electric vehicles contribute to overall mental health by lowering commute costs, risk of breakdowns and manages driver range anxiety. Further, driver confidence is increased when there is easy access to on-site charging facilities.
What else should you consider before buying an electric vehicle?
Now that we have learned all about the benefits of using an electric vehicle for your transportation needs, you may be convinced to buy one for yourself or your business. However, there are some additional considerations that should be weighed before settling on a purchase:
Even with the tax incentives, electric vehicles are not cheap. Comprehensive research will help ensure that you identify an environmentally friendly and budget friendly EV. The average starting cost of an electric vehicle is around $50,000. However, a U.S. Department of Energy report indicates that after 15 years electric vehicles generally cost less than traditional ICEs. This price difference is due to factors such as maintenance, repairs, financing and tax incentives.
There are three types of electric vehicles- all electric vehicles, plug-in hybrid electric vehicles and hybrid electric vehicles. All-electric vehicles are preferable because they generally have a driving range of about 150 to 400 miles and don’t utilize any gas, unlike the hybrid electric vehicles. Identify your business’s needs to ensure you choose an electric car that meets your business requirements.
Especially for fleet and delivery vehicles, the driving range is one of the crucial factors to consider. The driving range is the estimated distance one can drive without running out of fuel or charge. Look for real-life reviews and do a test drive to confirm the range for yourself.
An electric vehicle as you already know does not use normal fuel. There are many available charging options – fast charging, standard charging, and slow charging. Business owners should assess their routes and pick an electric vehicle that is compatible with the most readily available charging option. While a fast charger might sound ideal, they are expensive and can add to your bottom line. It’s important to double- check the charging options on the electric vehicle prior to purchase.
The most important aspect of owning a vehicle is the maintenance. You want to have proper maintenance that is affordable to help your vehicle perform well and efficiently. As a rule of thumb, electric vehicles are very easy to maintain. However, in the event of a breakdown, the repair bills can be very expensive. This is due to the cost of spare parts and the required expertise to repair an electric vehicle.
As with any highly technical purchase, there are always unforeseen costs. It is important to make sure you have the numbers for all the additional tools and parts that you may need. Features like a business charging station, the associated fees that come with installation, and maintenance of the charging station are all useful. Therefore, it is important to incorporate those costs into the overall financial picture before purchasing an electric vehicle.
After-sales Service and Support
The support from the dealership or manufacturer is important to make your ownership experience better. It can be a good or bad experience depending on the after-sales service and support offered by the manufacturer. Choose a good dealership with onsite mechanics who have the expertise to help your business repair and maintain an electric vehicle.
Need help with the purchase of an electric vehicle?
It is always the right time to consider how you are going to contribute to an eco-friendlier environment! We hope this post has provided valuable insight into the IRA and the benefits of electric vehicle ownership. As a forward-thinking company, we are making it part of our long-term mission to deliver your water through environmentally friendly means! Contact us today for all your water filtration and dispenser needs!