Dealers Face Challenges with EV Tax Credit

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Dealers Face Challenges with EV Tax Credit

The rollout of the electric vehicle (EV) tax credit has seen mixed success, with inconsistencies at dealerships. Are these challenges due to a lack of understanding among dealers or technical issues?

In this edition of Critical Materials, we’re diving into the EV tax credit’s implementation challenges, CATL’s interest in tapping into these incentives, and concerns around Fisker’s vehicles, including a federal investigation into acceleration problems. Stay tuned for insights into these key developments in the EV and automotive tech world.

30%: Dealers Face Challenges with On-the-Spot EV Tax Credit

The recent shift to apply the EV tax credit at the time of sale, a victory for consumers, aims to accelerate EV adoption by reducing upfront costs. However, this adjustment has proven difficult for dealers.

Since late last year, dealers have been required to use the IRS Energy Credits Online portal to manage EV tax credits for customers, ensuring these incentives are applied instantly at sale and that dealers are reimbursed swiftly by the government, typically within five business days.

Despite these measures, some dealers report complications with the system, experiencing problems in applying the credits during sales, with these issues sometimes occurring within the same dealership group.

In discussions with Automotive News, Andrew Tang, operations manager at California’s My Auto Group, highlighted uneven experiences with the new EV tax credit system. Some dealerships within the group successfully apply these credits, while others face obstacles that prevent them from doing so.

Tang expressed frustration, comparing the situation to being “dead in the water.” The dealership group has been in ongoing communication with officials for over two months, trying to resolve these technical difficulties. This impasse not only delays customers from taking home new vehicles with their tax credits but also puts dealers at a disadvantage against competitors who have navigated the system more effectively.

Gary Pretzfeld, co-owner of AutoTrustUSA in Florida, previously shared the initial challenges his dealership faced with the program:

The whole thing, it sucks and it’s unfair. I do really well with the Chevy Bolts, and I was doing well with the Teslas, but now I’m essentially going to get beat out by any competitor near me that can do the credit.

Despite these hurdles, the program has shown signs of success, with the U.S. disbursing $135 million in advanced credits to dealers within the first 36 days of 2024.

It’s important to remember that this initiative is still in its infancy, not yet reaching the three-month mark. Even our team at InsideEVs has encountered dealers who, while not facing technical issues, are confused about applying the credit to used vehicles. As both dealers and consumers navigate this new territory, some growing pains are inevitable. Until the process becomes smoother, some friction is to be expected.

60%: CATL Eyes a Share of U.S. EV Tax Credits

The complexities of the EV tax credit program don’t stop with its redemption process. The eligibility criteria for vehicles, influenced by protective regulations, can also be perplexing for consumers. These same regulations are prompting battery manufacturers like CATL to adapt their business strategies to tap into the lucrative tax credit market, either directly or by providing OEMs with eligible batteries.

CATL’s journey is noteworthy. Established in 2011, just as the Tesla Model S was about to debut, this Chinese battery giant has rapidly expanded, becoming a key supplier for major automotive brands including BMW, Honda, Hyundai, Toyota, Volkswagen, and Tesla. Today, CATL ranks as the third-largest battery manufacturer for electric vehicles, looking to leverage its position to benefit from the U.S. tax credit incentives.

The Inflation Reduction Act introduces specific challenges for battery manufacturers due to its provisions against Foreign Entities of Concern (FEOC). Specifically, the Act disqualifies batteries made or assembled by FEOCs from receiving U.S. tax credits starting in 2024. Furthermore, from 2025, vehicles with critical materials sourced, processed, or recycled by FEOCs won’t be eligible for the credit.

China’s classification as a “covered nation” under the U.S.’s FEOC criteria puts CATL, a company with significant ties to the Chinese government, in a tricky position. To navigate these restrictions, CATL is reportedly undergoing restructuring to avoid being labeled as an FEOC. This includes addressing ownership configurations that could potentially classify the company as an FEOC due to its executives’ shares and political affiliations.

Currently, CATL’s founder Robin Zeng Yuqun and Vice Chairman Li Peng collectively own 27.9% of the company. A restructuring of their agreement aims to reduce Zeng’s ownership to 23.5%, thereby aiming to keep CATL out of the FEOC designation. This strategic move illustrates the lengths to which companies are going to align with U.S. regulations and continue benefiting from the growing EV market.

Under the Inflation Reduction Act, batteries from Foreign Entities of Concern (FEOC) are ineligible for U.S. tax credits, prompting CATL to restructure due to its ties with China, a designated FEOC nation. This reorganization aims to ensure CATL’s compliance and maintain its competitive edge in the U.S. market.

CATL’s strategic adjustments, such as licensing technology to Ford’s Michigan battery plant instead of direct battery imports, highlight its efforts to navigate U.S. regulatory challenges. Additionally, plans for a battery plant in Mexico under the USMCA trade agreement signify CATL’s commitment to expanding its North American presence while adhering to legislative requirements.

90%: Fisker Faces New NHTSA Investigation Over Vehicle Control Issues

Fisker’s challenges continue to mount, with recent reports highlighting financial strains and operational hurdles. Following a dire financial assessment and numerous owner complaints about the Fisker Ocean SUV, the company has encountered regulatory scrutiny, including a previous National Highway Traffic Safety Administration (NHTSA) investigation related to braking issues—since resolved via software update. Amidst these challenges, including a stock performance so poor it risks delisting, and a harsh review from tech influencer Marques Brownlee, Fisker is now under a new NHTSA probe.

This latest investigation focuses on unintended vehicle movements, spurred by four complaints regarding the Ocean SUV’s failure to engage Park or select the correct gear. The NHTSA’s Office of Defects Investigation has initiated a preliminary evaluation to assess the risk of the vehicle moving unexpectedly, which includes incidents where an injury was reported.

A complaint lodged with the NHTSA details an incident where a driver was forced to remain pressing the brake pedal for over an hour because the car would not shift into Park:

The car shifted itself into neutral and when the driver tried to put the car in park to get out of the car and see what was wrong, the car started to roll forward despite being in park. To stop the car from hitting oncoming traffic, the driver was able to get back in the car and manually depress the brake. Once the driver hit the brakes, the car stopped rolling forward, however the car remained unresponsive to any of the other gears

[…]

The driver hit the brakes again to prevent the rollback and because the car was unresponsive, the driver was stuck holding the brake from 7:21 AM to around 8:45 AM.

With the complaints and defect investigation being recent developments, detailed information is currently limited. While some owners have submitted their grievances to the NHTSA, visible on the agency’s website, the Office of Defects Investigation has only begun a preliminary evaluation. As a result, it remains to be seen whether these initial complaints will be confirmed through further investigation.

100%: Is Fisker Headed for Success or Failure?

Henrik Fisker is known for taking bold steps in the automotive world. His creation, the Fisker Karma, was a testament to his design prowess, despite its limited commercial success.

The Fisker Ocean has been positioned as a critical comeback vehicle for the company, marking its re-entry into the competitive EV market after a significant hiatus. There’s potential for the Ocean to symbolize Fisker’s resurgence, assuming consumers are patient with the teething problems typical of a new EV brand. Tesla’s journey a decade ago shows that time and financial stability are key to overcoming early challenges.

However, financial difficulties and emerging issues with their debut model could prove detrimental to Fisker’s ambitions. The future of Fisker remains uncertain, hinging on its ability to navigate these initial obstacles.

Share your views on Fisker’s prospects in the comments.

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