Automakers are using a legal loophole to get customers an extra $7,500 tax credit — and business is booming

• Overall, EV leasing is down, but the Inflation Reduction Act might change that.
• Automakers might pass along the commercial EV credit to customers that lease their EVs.

Automakers using the loophole that incentivizes car shoppers for leasing an electric vehicle have seen their leasing business skyrocket — and it might be a secret jackpot for the transition to electric.

Last summer's Inflation Reduction Act introduced rules for new and used EVs to qualify for crucial tax credits. As of today, less than a dozen pure electric vehicles qualify for the de facto new EV discount, and that is expected to shift with more rules from the IRS.

But for vehicles that don't meet the sticker-price stipulations, 'Made in America' requirements, or other factors outlined in the law (and thus, don't qualify for those credits), there's a third option.

An automaker or its in-house finance arm can tap into the available commercial EV credit by leasing electric cars (that otherwise wouldn't qualify) to customers. This credit, which was designed to encourage commercial fleets to go electric, goes to the company that owns the vehicle.

The credit is $7,500 for vehicles that weigh less than 14,000 pounds, and $40,000 for all other commercial EVs.

An automaker can opt to keep the credit it earns from owning the EVs that it leases. Or, it can pass that along to the customer through the form of a lower monthly lease payment. The auto companies passing it along have seen business surge.

It's especially interesting as car leasing trends downward, with EV leasing no exception. Only 12.6% of new EVs were leased in 2022, down from 26.5% in 2021, according to Experian.

Which car companies are sharing the credit with customers?

Startup Lucid, along with at least 10 "traditional" automakers, are leveraging the commercial credit, according to data from J.D. Power.

Mercedes-Benz, Volkswagen, Chrysler, Jeep, Genesis, and Volvo are doing so through lease bonus cash. Audi, Mitsubishi, Lexus, and Toyota have other types of bonuses.

Of note, the brands J.D. Power shared that are utilizing the commercial credit are largely non-domestic and would likely have a harder time qualifying for the new EV purchase credit stipulations than the homegrown auto brands.

Automakers that passed along the amount in some capacity saw EV leasing penetration grow from 25% at the start of this year to 52% in early February.

"Even in the old days, 45% would have been a remarkable penetration for leasing," Tyson Jominy, J.D. Power vice president of data and analytics, told Insider last month.

On the flipside, the automakers that aren't passing the credit along have seen relatively flat EV leasing penetration hovering around 8% to 10% over the past few months.

Leasing could be just what the EV industry needs

As the auto industry races to accelerate EV adoption as it pours $1.2 trillion into the transition over the next several years, leasing could be a key component for both consumers and car companies.

Consumers may want to lease EVs as a way of trying the tech without committing to a costly purchase while battery tech is still improving and depreciation is uncertain.

Meanwhile, automakers are interested in leasing EVs in part due to the commercial and used EV tax credits. Being able to pass along the commercial EV credit could bring in customers that might not have otherwise considered electric. Getting those vehicles back after their lease — and putting them into the used market — opens opportunities to bring more customers in via the used EV credit.