Toyota Will Lose the Full EV Tax Credit by October

• A federal tax credit of up to $7,500 is available for new EVs and some PHEVs.
• The tax credit begins running out once an automaker has sold a cumulative 200,000 EVs and PHEVs.
• With over 190,000 PHEVs sold, Toyota will soon run out of its credit.

The 2023 Toyota bZ4X is the automaker's first fully electric vehicle, and the mere existence of a Toyota EV should guarantee it some measure of success. But the bZ4X will face a few challenges when it goes on sale — initial range estimates are merely acceptable, rear headroom is tight, and the odd steering wheel position makes it difficult to feel comfortable in the driver's seat.

But the bZ4X has one disadvantage you might not expect, and it has to do with Toyota's success in selling plug-in hybrid vehicles. Toyota is on the cusp of losing its full federal EV tax credit, which means bZ4X buyers who wait too long will end up paying more for their new electric SUV.

What is the EV tax credit?

A federal tax credit is offered to buyers of new electric vehicles and certain plug-in hybrids (a full list is available here). The credit incentivizes shoppers to consider an eco-friendly car for their next purchase, with a credit of up to $7,500 available depending on battery pack size.

It's important to note that this credit is only available to manufacturers that have sold less than 200,000 combined EVs and PHEVs. The incentive begins to halve two quarters after sales of EVs and PHEVs cross that threshold. For a vehicle eligible for the $7,500 full credit, for instance, the first reduction caps the credit at $3,750. The credit then drops to $1,875 six months later. And six months after the $1,875 credit is instated, the credit drops to zero. States and local governments may have their own incentives, but they are a fraction of what the federal government offers.

To date, only General Motors and Tesla have sold enough EVs to be ineligible for the federal tax credit.

Toyota will likely lose its federal tax credit by the end of next year

According to a recent report by Bloomberg, cumulative sales of Toyota plug-in hybrids — think the Prius Prime and RAV4 Prime — hit 183,000 by the end of 2021. The report states that an additional 8,421 PHEVs were sold in the first quarter. With sustained interest in Toyota's plug-ins and the impending launch of the bZ4X, it's almost assured that the automaker will hit the 200,000-unit cap by the end of the second quarter.

The end of June will likely mark the beginning of the end for Toyota's federal tax credit. But prospective buyers will have some time to make their decision. Remember, the reduction to $3,750 begins two quarters after the threshold is crossed, so buyers have until the end of September to get the full credit. Once April 1 rolls around, the credit drops once before disappearing completely in October 2023.

It's worth noting that lawmakers are currently considering extending the federal tax credit to continue encouraging EV adoption, but it's not clear at this point whether those legislative efforts will be successful.

Edmunds says

The launch of the 2023 Toyota bZ4X will likely coincide with the automaker losing the federal tax credit. Shoppers have through the rest of the summer to purchase a new Toyota PHEV or EV with the full credit amount.