Toyota just started its BEV program, but it wasted all its tax credits on hybrids

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Toyota has sold its 200,000th plug-in car in the US, meaning its access to the $7,500 federal tax credit will sunset over the course of the next 15 months.

The company joins Tesla and GM in no longer qualifying for credits, with Ford and Nissan also expected to hit the limit later this year.

The credits are designed to sunset gradually, so those with a current Toyota order will still get the full credit as long as they take delivery before the end of this quarter.

Since Toyota sold its 200,000th plug-in car last quarter, that means the full credits continue until the end of this quarter (September 30). Then, there will be a reduced half-credit of $3,750 available for the next two quarters, and $1,875 for the two quarters after that. These credits have no unit limit, so Toyota can use them for as many plug-ins as it can sell in that time period.

This moment may come as a surprise to many (though Toyota warned us about it in April), since Toyota hasn’t really sold any BEV cars yet. It had a short-lived RAV4 EV program in the early 2010s, with electric powertrain supplied by Tesla, but that only accounted for about 2,500 units. And recently it has finally shipped its first BEV, the Toyota bZ4X, but only a couple thousand of those have been sold so far (and are currently being recalled to stop the wheels from falling off).

But Toyota has been selling low-range plug-in hybrids all along, with the original 5.2kWh Plug-In Prius and 8.8kWh Prius Prime (which we at Electrek weren’t fans of). The US federal tax credit applies to plug-in vehicles with more than 5kWh worth of battery storage, with a benefit of $500/kWh until the cap of $7,500 is reached.

So low-range cars like the Plug-In Prius with its barely-over-threshold battery only qualify for the minimum possible credit of $2,500, while the Prime gets $4,500. The newer RAV4 Prime PHEV has an 18kWh battery, which is enough to get the full $7,500 credit.

Because of all these plug-in hybrid sales, Toyota has used up its allotment of 200,000 credits largely on low-range hybrids, leaving a big chunk of credit value on the table.

Now it has finally started selling BEVs with the bZ4X, but it’s off to a slow start. Toyota only expects to sell about 7,000 units this year, which means only a couple thousand BEV customers will benefit from the full tax credit which starts to sunset three months from now. That’s assuming it can handle its current recall issues quickly.

Electrek’s Take

We’ve written a lot about Toyota’s deficient (or outright hostile) EV strategy, and this is yet another sign of it. Instead of making compelling electric cars, it looked at the regulations and made a PHEV with the “minimum amount of flair.” Toyota cynically sized up the Prius battery just above the minimum amount to qualify for EV credits and carpool stickers while others in the industry have actually been taking steps to make better EVs.

As a result, Toyota missed out on several hundred million dollars worth of credits for its customers and, worse, its new EV now looks much less interesting compared to other EVs in its class like the ID.4, EV6 and Ioniq 5. These are not only better cars (since manufacturers have worked out some kinks with previous generation EVs) but also cheaper when credits are taken into account.

One oft-repeated downside of the EV credit’s design is that it can award latecomers to the market. Companies that take EVs seriously and hit the market early, then run out of credits, end up disadvantaged against other EVs in their class that come along later and can still benefit from the credit.

But Toyota doesn’t even have that going for it, since it spent so many of its allotment on partial credits for the Prius Plug-In and Prime. So now it has the worst of both worlds – a late entry into market, a lackluster first-generation EV when everyone else is on second- or third-generation, and no credits to make its car look more appealing than it is.

It has been said over the years that electric upstarts are only dominating now while the market is small, and that as soon as big traditional automakers decide to take EVs seriously, they will swoop in and crush the startups with their superior expertise. But Toyota’s effort with the middling bZ4X and its constant missteps in EV strategy suggest that perhaps it doesn’t actually have a secret master plan after all. And unless Toyota gets its act together, it could be pretty disastrous, both for it and Japan as a whole.

All that said, it is possible that Toyota may gain access to the US EV tax credit again if a bill to extend it passes through Congress. The House has already approved the Build Back Better bill which would not only extend the credit limits for all manufacturers but also make them easier for EV buyers to file for. But this necessary climate and infrastructure package was blocked by all 50 senate republicans and one coal-investing Democrat, despite that the senators supporting the bill represent many tens of millions more Americans than those opposing it, and the public consistently supports the bill by wide margins.

There are some signs of life for the bill, but it has been stalled for the better part of a year now. So if you want EVs to be more affordable during a time of high gas prices and for climate change – the largest problem humanity has ever faced – to be addressed, then that issue is on the ballot this November.


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