Why Rivian Calls the New EV Tax Credit a “Rug Pull” for USA’s EV Makers

Key Points:

• Lawmakers decreed an EV only qualifies for a tax credit if its final assembly happens in North America, and its battery include 40%+ USA-sourced “critical minerals” and also be assembled locally.
• The Rivian R1S SUV is now priced out of a tax credit even without bells and whistles.
• With its finances still in the red despite nearly a hundred thousand pre-orders, Rivian is struggling with supply chain difficulties.

Just when EV automaker Rivian appears ready start production of its R1T electric pickup and R1S electric SUV, legislative changes ended the EV tax credits its vehicles would get under earlier rules. The company advocates a two-year “transition period” before the new rules kick in fully. It argues that without this period so many EVs will become expensive and curtail EV ownership.

Since Rivian’s EVs are high-end, lower-cost electric pickups like the Ford F-150 Lightning might prove even more competitive. The bill rewards EV automakers with affordable models. While Rivian has a lower-priced EV in the works, new trouble is brewing in that front. Here’s what the situation looks like right now for this energetic EV innovator.

Rivian’s Clean Vehicle Credit Problem

Rivian’s EVs would have qualified for a $7,500 federal tax credit under the current system. The Federal Plug-In Electric Drive Vehicle Credit based eligibility on an EV’s battery kilowatt hour (kWh) and the company’s total number of EVs sold. Rivian’s deliveries are below the 200,000-vehicle threshold after the government cut off the earlier tax credits . Its R1T trucks boast battery sizes of 135 kWh and 180 kWh, plus a planned 105 kWh version EVCompare notes. All these exceed the 16-kWh requirement for the maximum $7,500 tax credit eligibility.

However, the Federal Plug-In Electric Drive Vehicle Credit is now outgoing as of late 2022. The Clean Vehicle Credit system, introduced as part of the Inflation Reduction Act, replaces it and features different eligibility guidelines. Lawmakers decreed an EV only qualifies for a tax credit if its final assembly happens in North America, and its battery include 40%+ USA-sourced “critical minerals” and also be assembled locally. Several other limits also apply, including a ban on battery components made or recycled by “foreign entities of concern.”

Finally, the government only offers the new Clean Vehicle Credit for pickups and SUVs costing $80,000 or less. The cutoff price for passenger cars is $55,000, but Rivian doesn’t produce any car models. The buyer’s income also determines eligibility, with higher income EV purchasers no longer eligible for a credit.

Rivian’s Tax Credit Dilemma

Theoretically, Rivian’s R1T and R1S EVs look like most models would qualify for the new Clean Vehicle Credit. Base prices fall below the $80,000 cutoff established by the new bill. The R1T pickup’s Explore trim starts at $67,500, while the more elite Adventure trim features a $73,000 base price. However, these prices are only $12,500 and $7,000 away from the legal threshold respectively. Even a modest set of optional features – a non-standard paint color, larger wheels, a few extra comfort details – adds enough to make the vehicles ineligible.

This is exactly the problem Rivian faces according to Rivian’s VP of Public Policy James Chen. Chen stated in an AutoNews interview “nearly all of our vehicles would be ineligible for incentives” because basically everyone chooses options pushing the price over $80,000. The Rivian R1S SUV is now priced out of a tax credit even without bells and whistles. As MotorBiscuit reports, Rivian dropped the Explore trim entirely in September 2022. The Adventure trim with its $78,000 base price tag is now the cheapest model, below the $90,000 Launch Edition.

Many of Rivian’s 98,000 pre-orders probably come from higher-income purchasers, too. Rivian’s current EV lineup is high-end, not aimed at blue collar EV buyers the Clean Vehicle Credit intends to help.

Rivian’s Cheaper Model – A Way Out?

Rivian has a thriftier EV model in the works, but it may have a difficult time getting there. With its finances still in the red despite nearly a hundred thousand pre-orders, Rivian is struggling with supply chain difficulties. Trying to meet Inflation Reduction Act battery sourcing and assembly requirements with North American sourcing could make those problems worse. With around 76% of the world’s lithium ion EV batteries coming from China, eligible batteries will experience a supply squeeze.

Rivian will likely see input costs go even higher as a result. Weak demand and high production costs already caused it to cancel the slightly cheaper R1T and R1S Explore models, the Wall Street Journal reports. Rivian said getting rid of these models would help it ramp up manufacture faster. This seems to be the case with third quarter (Q3) production up 67%, according to the Chicago Tribune.

However, these steps are moving Rivian farther away from Clean Vehicle Credit tax credit eligibility. Counterbalancing this might be Rivian’s plans for a more budget-friendly line of EVs. The R1 line, including the R1T pickup and R1S SUV, is the premium line. Rivian also means to start building an R2 lineup within the next few years.

The Rivian R2 – The Mystery Budget Model

Rivian revealed its plans to launch a second, more affordable platform called the R2 platform in a shareholder letter. Rivian says the R2 is part of its overall plan moving forward. This plan aims to “grow and expand” its “product portfolio globally across different price points and form factors” as quoted by CarBuzz. Rivian hasn’t unveiled exactly what the first R2 will be. Speculation includes a compact EV pickup truck, a midsize SUV, or a sedan-like crossover similar to many other automakers’ offerings.

A more affordable R2 could help Rivian tap into the affordable EV market. It would also likely qualify for the new Clean Vehicle Credit, making it even more attractive to budget-minded buyers. However, the R2 isn’t likely to be ready until 2024 and probably won’t start large-scale manufacture until 2025.

Even 2025 production of the R2 could see delays following the latest news. Rivian plans to open a large new factory in Georgia. Rivian claims this $5 billion facility would employ 7,500 or more workers and be able to build 400,000 vehicles a year. The R2 would likely see production here, making use of economies of scale to make it profitable despite its lower price point.

However, a judge recently blocked efforts by local and state officials to give Rivian $1.5 billion in incentives. The judge, Brenda Trammell, said there was insufficient proof the factory would benefit Georgia residents or even be possible. Rivian, the Georgia Department of Economic Development, and a “Joint Development Authority” represent four counties intend to fight the decision. However, the plant development plan could be delayed or even derailed by the lack of incentives.

Rivian’s Proposed Two-Year Grace Period

Rivian argues the sudden introduction of the new EV tax credit rules will harm not only its sales, but those of other US EV makers. Its statement claims “this legislation will pull the rug out from consumers considering purchase of an American-made electric vehicle.” Even though the bill was meant to promote US EV manufacture, Rivian says it will have the opposite effect. This is because Tesla and other established companies can cut costs by having part of their vehicles made outside the USA.

This enables them to afford to offer prices low enough for a tax credit, which then feeds back to make their pricing even more attractive. Startups with higher US manufacturing costs will be priced out of the tax credit. This will make them artificially less competitive on price and make it harder to get American-made EV production rolling.

What Rivian Wants

Rivian proposes extending the old EV tax credit for two more years for a smoother transition period. VP James Chen asked lawmakers to “extend the transition period to provide consumer choice and protect good-paying manufacturing jobs here at home.” It doesn’t want the new tax credit canceled or modified, but wants a rider or amendment making the old tax credit still available to startups through 2024. It contacted California, Georgia, Illinois, and Michigan senators about its idea.

So far, there’s no official response. The Inflation Reduction Act, with its Clean Vehicle Credit guidelines, was signed into law. Lack of an EV tax credit could make the higher-end, USA-made EVs of Rivian and other automakers less competitive. However, Rivian still has plenty of demand for its EVs in spite of such obstacles and troubles. The R1T and R1S may well have a bright future regardless.

If Rivian soldiers on until 2025 the R2 will likely qualify for the Clean Vehicle Credit and help it get plenty of orders in the affordable EV market, too.

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