When the language for the new US federal EV tax credit first came to light, it seemed it would perhaps favor gas-powered plug-in hybrid electric vehicles (PHEVs) over some full electric vehicles. Under the old rules, most PHEVs were eligible for a smaller credit thanks to their smaller battery packs and lesser efficiency.

PHEVs have minimal range, they're not nearly efficient as true EVs, they're only electric if you actually plug them in often, and they still pollute the environment. In fact, all PHEVs require gasoline and spew tailpipe emissions, just like regular gas cars and traditional hybrids. They may be more efficient that the latter in some cases, and you can keep them from creating harmful exhaust, but only if keep them charged all the time and never exceed their minimal electric driving range.

With all of that said, the new tax credit that comes as part of the Biden Administration's Inflation Reduction Act (IRA) provides the full $7,500 credit for qualifying PHEVs just the same as it does for qualifying EVs. While this already seemed like a bad idea to many green-friendly advocates, it's even worse now that we've learned which vehicles qualify.

There are a whole lot of specifics in the new credit's language and rules, some of which aren't even completely hashed out. We could go into all the details, but there's really no need. Instead, simply pointing out the reality is all that should be needed to shed light on the problem with the IRA EV tax credit.

There's a cap on vehicle prices such that SUVs, trucks, and vans can only cost up to $80,000 to qualify for the $7,500 credit. If a vehicle isn't a truck, van, or SUV, it's categorized as "other," and has a $55,000 cap.

Based on the government's most recent guidance, some versions of the fully electric Ford Mustang Mach-E and Tesla Model Y aren't classified as SUVs, so if they cost more than $55,000, they don't get the credit. Meanwhile, the smaller, less efficient, Ford Escape PHEV crossover is eligible for the full credit since it's classified as an SUV.

The above is only one example of several similar scenarios based on the new rules. There are actually many PHEVs, some quite pricey, that will get the full credit despite being smaller, less family- and cargo-friendly, and less efficient than their fully electric stablemates.

We can only hope that as the government continues to work through the rules and finalize details related to the new EV tax credit, it will figure out how to resolve these obvious issues with vehicle classification. As it currently stands, while the credit may help consumers afford more efficient vehicles, it's not set up to help the environment as it aims to.

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