Looking to take advantage of the new electric vehicle tax credits with a PHEV purchase? Here is everything you need to know, plus the short list of PHEVs that may be eligible.
Table of Contents
The Inflation Reduction Act, passed in August 2022, changed the eligibility criteria for plug-in hybrid electric vehicles (PHEVs) to qualify for the clean vehicle tax credit. As of August 16th, 2022, only PHEVs made in North America qualify for the tax credit. The sales cap still applies until the end of 2022, however, meaning some PHEVs remain ineligible for the credit until January 1, 2023.
Confused? You’re not alone.
The long and short of it is, if you’re interested in buying a PHEV in the next few years, our advice is to act fast (for most vehicles). Increasingly onerous eligibility requirements come into effect from January 1, 2023. These include factors such as where critical minerals were sourced, where batteries are made, income thresholds, and price caps.
Note: If you purchase and take possession of a qualifying electric vehicle between August 16, 2022, and December 31, 2022, the only new rule that applies is that the final assembly of the vehicle has to be completed in North America. This means that almost anyone interested in buying a PHEV and claiming the tax credit in the near future would do well to purchase before the end of 2022. Otherwise, be prepared to wait for at least a year or two for manufacturers to change their sourcing and assembly practices to satisfy the new criteria.
The new rules for PHEV 2023 tax credits
The clean vehicle tax credit’s new eligibility criteria come into effect on January 1, 2023. There are requirements for both the PHEV and the purchaser. To qualify from January 2023 onwards:
- A PHEV sedan must have an MSRP of $55,000 or less
- A PHEV truck or SUV must have an MSRP of $80,000 or less
- 40% or more of production materials must be sourced from North America or a free-trade partner
- Purchasers who are single must have an income of no more than $150,000 a year
- Purchasers filing taxes jointly must earn no more than $300,000 a year combined.
To remain eligible for the clean vehicle tax credit after 2024, a PHEV must have a battery made with at least 50% of its components manufactured or assembled in North America. This percentage increases to:
- 60% for PHEVs placed into service during 2024 and 2025
- 70% for PHEVs placed into service during 2026
- 80% for PHEVs placed into service during 2027
- 90% for PHEVs placed into service during 2028.
After December 31, 2028, any new PHEV must have 100% of its battery components manufactured or assembled in North America in order for the tax credit.
Which PHEVs qualify for the 2023 tax credit?
As the IRA became law in August 2022, the Alliance for Automotive Innovation, a trade group representing VW, GM, Toyota, Ford, and other automakers said that as of January 1, 2023, “none [of the 72 EVs or PHEVs eligible in 2022] would qualify for the full credit when additional sourcing requirements go into effect. Zero.
Audi of America, Porsche, and Kia say that their vehicles don’t satisfy the new “made in America” rules; Volkswagen says only its Audi PHEV will be eligible for the credit, though the Alternative Fuels Data Center doesn’t list a 2023 Audi PHEV on its provisional list of qualifying vehicles.
So far, it seems just two 2023 PHEVs are set to qualify for the clean vehicles tax credit in 2023. There’s also a chance some of the 2022 models will continue to qualify. Automakers should release more information on their assembly and sourcing in the coming months, allowing us to add PHEVs likely to qualify for the full $7,500 in 2023.
#1. BMW 330e Sedan (PHEV)
Highlight: BMW’s 330e PHEVs are the only 2023 builds listed as qualifying for the tax credit. This automaker is included on the Dow Jones Sustainability Index but the 330e series offers poor fuel economy and has higher tailpipe emissions than most PHEVs.
MSRP: starting at $44,295
The BMW 330e plug-in hybrid electric sports sedan has faster acceleration than its ICE counterpart (the 330i), getting up to 60 mph in 5.6 seconds. It also offers 288 HP and is a roomy 5-seater with a luxury interior.
Now for the bad news. Both 330e PHEVs have a paltry 12 kWh high-voltage lithium-ion battery pack. This barely qualifies them as PHEVs and only allows for short local trips (less than 22 miles) on electric only. As a guide, the average two-way commute in the U.S. is 32 miles. So, if you want to drive all-electric you’d better be able to charge up at work.
The 330e sedan provides up to 22 miles from electric only. This isn’t enough for the average two-way commute in the U.S. (32 miles), meaning you’ll be using gas unless you can charge up at work.
What’s more, these PHEVs are actually less fuel efficient than their all-gas counterparts. The 330e gets an EPA-estimated 28 mpg, compared to 30 mpg for the 330i.
A fully charged 330e battery and full tank of gas offers a range of 320 miles. This is 30 more than the xDrive PHEV, but less than the 330i, which gets 468 miles. This is because the PHEVs have a much smaller fuel tank – 10.6 gallons versus 15.6 gallons in the ICE 330i.
The 330e puts out 160 grams per mile of tailpipe emissions, which is less than the xDrive but more than many other PHEVs.
You can get a full charge of the lithium-Ion battery in 10.9 hours at 120 V. With fast-charging, it takes 3 hours at 240 V.
The main benefits for the 330e series, then, is the potential to minimize maintenance involved with a gas engine, cut some fumes and noise, and gain a bit of acceleration. You also get to own a fancy bimmer, of course.
BMW’s warranties include: a 4-year or 50,000 mile New Vehicle Limited Warranty for its 2023 330e; 12-year Unlimited Mileage Rust Perforation Limited Warranty; a 4-year Unlimited Mileage Roadside Assistance Program; and an 8-year or 80,000-mile High-Voltage Battery Warranty.
#2. BMW 330e xDrive (PHEV)
Highlight: All the luxury of a bimmer but few of the benefits of an electric vehicle. This BMW is less efficient than its gas-powered equivalent has a range under 300 miles with a full tank and fully charged battery, and only just covers the average one-way U.S. commute on electric only.
The all-wheel-drive BMW 330e xDrive PHEV is very similar to the 330e sedan. It boasts a 2.0 L, 4-cylinder, automatic (S8), turbo engine and, assuming similar performance to the 2022 model will have a range of just 290 miles with gas and electric combined.
On electric only, the BMW 330e xDrive PHEV offers a maximum of 20 miles. This is woeful for a PHEV in 2023. For most drivers, this won’t cover even the average one-way commute.
Again, assuming similar performance to the 2022 model, the 2023 xDrive looks likely to offer little more than 67 MPGe for gas and electric and a pathetic 25 mpg for gas.
And here’s the real kicker. The 330e xDrive puts out more than three times the tailpipe emissions of the Ford Escape PHEV. At a whopping 192 grams per mile of tailpipe emissions, this PHEV is far filthier than other PHEVs.
All in all, the BMW 330e xDrive is less fuel efficient than its gas-powered counterpart; the 330i xDrive at least gets 28 mpg! So, while you may be able to claim the clean vehicle tax credit for this bimmer, bragging rights are pretty limited when it comes to actually being ‘cleaner’. In the end, you’ll probably save far more at the gas pump than the $7,500 credit if you choose an all-electric sedan instead.
#3. 2023 Ford Escape (PHEV)
Highlight: The Ford Escape is made in North America, is super affordable, offers incredibly low tailpipe emissions, and boasts a range of 500 miles overall, with 38 miles on electric only. The Ford Escape PHEV was our top pick for a PHEV qualifying for the tax credit in 2022.
MSRP: $35,190 – $40,435
The Ford Escape PHEV is one of the best PHEVs when it comes to fuel economy and range. It also costs a lot less than most PHEVs and you can fill the tank with regular gas, saving even more money.
This 2.5 L, 4-cylinder, automatic, front-wheel-drive PHEV has the lowest tailpipe emissions of any 2022 PHEV we’ve seen (77 grams per mile). The Volvo S60 extended range is closest at 99 g per mile.
The Escape offers 105 MPGe with gas and electric combined and an excellent 40 mpg on gas alone. The 96 kW DCPM battery can charge fully in just 3.3 hours at 240 V.
The Escape isn’t as luxury a PHEV as the BMW X5 or the Volvo S60, but it’s hard to beat for affordability, fuel economy and range. If you have a longer than average commute, love road trips, but aren’t planning any off-roading, the Ford Escape PHEV is a top choice.
With a possible $7,500 tax credit, a 2022 Ford Escape PHEV could cost you less than $28k. And, thanks to Ford’s investments in homegrown batteries and critical mineral supply chains, chances are this one will continue to be eligible for the credit in 2023.
However, the AFDC does not currently list the 2023 Ford Escape PHEV as a qualifying PHEV.
2022 PHEV models eligible for the tax credit
In addition to the BMW 330e PHEVs, some 2022 PHEV models may continue to qualify for at least part of the tax credit in 2023. Those qualifying for 2022 include:
|Make and model||Starting MSRP||Leaf Score||Likely to qualify in 2023|
|2022 Audi Q5 TFSI e Quattro, Performance PHEV (SUV)||$43,500||3||Yes (according to VW)|
|2022 Lincoln Corsair Grand Touring (PHEV)||$36,105||2||Yes|
|2022 Lincoln Aviator PHEV AWD||$68,980||2||Yes|
|2022 Chrysler Pacifica PHEV||$47,500||3||No|
|2022 Ford Escape PHEV||$35,190||5||Yes|
|2022 Jeep Wrangler PHEV||$53,795||2||No|
|2022 Jeep Grand Cherokee PHEV||$55,865||3||No|
|2022 Volvo S60 T8 AWD Recharge PHEV||$51,250||4||No|
How to tell where a PHEV is assembled
Some PHEVs are assembled in multiple locations, which means that while an individual PHEV may qualify for the tax credit under the new rules, an identical PHEV might not.
How can you tell where a PHEV was put together? Check the manufacturing location for a specific vehicle by looking for the vehicle identification number (VIN) on the PHEV itself. This is usually found on the inside of the passenger side door.
Type the VIN into the VIN Decoder website run by the National Highway Traffic Safety Administration (NHTSA). If this specific PHEV was made in North America, you should be able to claim the tax credit, assuming the vehicle and your individual circumstances satisfy any additional requirements.
Final thoughts on PHEVs for 2023
For automakers already lining up their 2023 slate of vehicles, it’s too late to change sourcing and assembly to satisfy the new requirements. Instead, many automakers are signing contracts with new suppliers and looking to bring online assembly plants in North America to ensure their EVs an PHEVs become eligible for the tax credits as soon as possible.
Some automakers are ahead of the game here. For instance, Ford is building a battery lab – Ford Ion Park – in the U.S. with an investment of $185 million. This lab will allow Ford to make its own battery cells and finished batteries, all in the U.S.
Honda will also soon start using lithium-ion batteries built in the U.S. through a joint venture with LG Energy Solution. Honda already has an arrangement allowing it to use GM’s Ultium batteries, which will also be made in America. These batteries will enable longer ranges in EVs and PHEVs.
In addition, the deal between GM and Honda allows for mutual vehicle platform-sharing. This means Honda can use GM’s EV architecture when designing and building its cars, and vice versa. The first co-developed Honda/GM model – the Prologue SUV – is set to go on sale in 2024. GM also plans to build its Cadillac Lyriq EV at its plant in Tennessee, meaning it should qualify for the EV tax credit. The Chevrolet Corvette will also be offered as a PHEV in 2023, but there’s a strong chance it won’t qualify for the tax credit because of the price cap.
Hyundai will also begin building PHEVs, notably the GV70 SUV, at its manufacturing facility in Montgomery, Alabama in December 2022. This may mean the PHEV qualifies for at least part of the tax credit, although it’s not clear where the company sources the batteries and critical minerals for the slated build.
Some Toyota models may also qualify for the tax credit in the near future. That’s because the automaker is investing $2.5 billion in a new battery plant to be built in North Carolina. Volvo also plans to launch a made-in-America Polestar 3 SUV in 2023, along with a Polestar 4 SUV coupe. In 2024, Volvo looks set to launch a Polestar 5 four-door GT. Again, while these vehicles will be made in the U.S., they would have to meet conditions for battery assembly and mineral sourcing, as well as price caps, before they qualify for any or all of the tax credit.