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Toyota just launched its BEV program, but it squandered all of its tax credits on hybrids

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

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

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

With Toyota selling its 200,000th plug-in car last quarter, that means full credits will continue through the end of this quarter (September 30). A reduced half credit of $3,750 is then available for the next two quarters and $1,875 for the two subsequent two quarters. These credits have no quantity limit, so Toyota can use them on as many plugins as it can sell during that period.

This moment may come as a surprise to many (although Toyota warned us about it in April) as Toyota has yet to actually sell BEV cars. It had a short-lived RAV4 EV program in the early 2010s, with a Tesla-supplied electric powertrain, but only accounted for about 2,500 units. And recently it finally delivered its first BEV, the Toyota bZ4X, but only a few thousand of these have been sold so far (and are currently being recalled to prevent 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 the 8.8kWh Prius Prime (which we weren’t fans of at Electrek) . The US federal tax credit applies to plug-in vehicles with more than 5 kWh of battery storage, with a $500/kWh benefit until the $7,500 cap is reached.

So, low-range cars like the plug-in Prius, with its barely above-capacity 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 largely used up its 200,000 credit allotment on low-range hybrids, leaving a large chunk of credit value on the table.

Now it has finally started selling BEVs with the bZ4X, but it’s slowly picking up. Toyota expects to sell only about 7,000 units this year, meaning only a few thousand BEV customers will benefit from the full tax credit, which begins in three months. Assuming it can quickly resolve its current recall problems.

Electrek’s take

We’ve written a lot about Toyota’s flawed (or downright hostile) EV strategy, and this is another sign of that. Instead of building convincing electric cars, they looked at the regulations and made a PHEV with the “minimal flair”. Toyota has cynically rated the Prius battery just above the minimum to qualify for EV credits and carpooling stickers, while others in the industry have actually taken steps to make better EVs.

As a result, Toyota has missed out on hundreds of millions of dollars worth of credit for its customers, and worse, its new EV now looks a lot less interesting compared to other EVs in its class like the ID.4, EV6 and Ioniq 5. Not only are these better cars (as manufacturers worked out some kinks with previous-generation EVs), but they’re also cheaper when credit is factored in.

An often-repeated disadvantage of the EV credit design is that it can attract laggards in the market. Companies that take EVs seriously and bring them to market early, which then run out of credit, will end up being disadvantaged compared to other EVs in their class that can come on later and still benefit from the credit.

But Toyota doesn’t even have that to offer, having spent so much of its allotment on fractional credits for the Prius plug-in and Prime. So now it has the worst of both worlds — a late entry, a lackluster first-gen EV when everyone else is second- or third-gen, and no credits to make its car look more attractive than it is.

It’s been said over the years that electric newbies only dominate now while the market is small, and that once big traditional automakers decide to take EVs seriously, they’ll invade and crush the startups with their superior expertise . But Toyota’s efforts with the mediocre bZ4X and its constant missteps in EV strategy suggest there might not be a secret master plan after all. And if Toyota doesn’t get its act together, it could be quite disastrous, both for it and for Japan as a whole.

All in all, it’s possible that Toyota will regain access to the US EV tax credit if a bill goes through Congress for extension. The House of Representatives has already approved the Build Back Better bill, which would not only expand credit limits for all manufacturers but also make it easier for EV buyers to apply. But that necessary climate and infrastructure package has been blocked by all 50 Senate Republicans and one coal-investing Democrat, even though senators who support the bill represent tens of millions more Americans than those who oppose it, and the public that Law consistently supported by a wide margin.

There are some signs of life for the bill, but it has been stalled for almost a year now. So if you want EVs to become more affordable in an era of high gas prices and to address climate change – the biggest problem humanity has ever faced – then this issue is on the ballot this November.

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