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Toyota is running out of tax deductions for electric cars

Toyota Motor Corp. is moving closer to depleting a major U.S. tax deduction for hybrid and electric cars, a milestone that the automaker claims will raise costs and prevent the introduction of climate-friendly cars.

The law allows automakers to offer a $ 7,500 tax deduction to buyers of fully or partially electric cars, but only up to $ 200,000 per vehicle. Corporation. Demand for Toyota’s plug-in hybrid cars has grown steadily, especially as gasoline prices have risen to over $ 4 per liter. gallon, which has pushed its total sales of qualified vehicles up to 183,000 by the end of 2021, according to an analysis by BloombergNEF. The company reported sales of an additional 8,421 plug-in hybrid and electric cars in the first quarter.

The Japanese manufacturer has been at the center of a debate in Washington over whether to extend additional tax deductions to unionized automakers, and is poised to become the third manufacturer to hit the border, joining General Motors and Tesla. Toyota executives have said they plan to run out of their share of credits as soon as this summer.

“We’re planning it because Tesla is out and General Motors is out and we’ll probably be out in the second quarter,” Bob Carter, Toyota Motor North America’s executive vice president of sales, said in a recent interview. “When you’re out, you’re going into a downsizing phase, so we’ll plan that.”

The automaker has joined its rivals in lobbying for an extension of the cover, but Toyota and Tesla have loudly opposed an effort by the Biden administration to offer an additional $ 4,500 in credits to unionized automakers, a position favored by GM, Ford and Stellantis .

Democrat Sen. Joe Manchin, a swinging vote and lynchpin for such an extension, called the White House’s proposal to extend the popular tax deduction “ridiculous” on April 28, noting a large existing order collection on electric cars and other vehicles. while automakers quarrel with critical parts shortages.

Absent Congress action in the near future, Toyota faces a settlement period that will halve the value of its credits every six months until it hits zero. The phasing-out process begins two blocks after the ceiling is reached, meaning Toyota’s credit could be reduced to $ 3,750 as soon as January 1, 2023. Toyota could not have more credits to offer car buyers as soon as next October.

Toyota dealers have prioritized sales of increasingly popular hybrid models, which now account for more than a quarter of the company’s US sales volume. Demand for the gas-electric version of the brand’s best-selling vehicle – the RAV4 compact SUV – rose by double-digit last quarter.

Carter said Toyota has considered lowering the price of its new electric cars to compensate for the looming loss of the federal tax deduction.

Nissan and Ford are the second closest manufacturers close to getting credits. The Japanese company has sold 166,000 electrified vehicles by the end of 2021, followed by Ford’s 157,000.

Automakers sold record 657,000 hybrid or all-electric cars in 2021, according to an analysis by BloombergNEF. While it accounted for only 4.4 percent of new car sales, it was twice as high as a year earlier. Analysts say they see no sign of growth stopping soon, even without the full federal credit for some brands.

“We have seen an increase quarterly in the purchase of electric cars and hybrids,” said Michelle Krebs, executive analyst at Cox Automotive, which conducts market research for car dealers, since the fourth quarter of 2020 in an email.

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