Electric vehicle (EV) stocks went on a tear as the Inflation Reduction Act (IRA) made its way through Congress and investors saw a huge boost for the sector coming. EV charging companies ChargePoint Holdings (CHPT 2.85%) and Blink Charging (BLNK -0.14%) are up 21% and 30%, respectively, in the past 30 days. Shares of EV start-up Lordstown Motors (RIDE) are more than 9% higher in that time.
But the stocks are sinking Friday. As of 3:45 p.m. ET, ChargePoint shares had dropped 8.7%, Blink shares were down 8%, and Lordstown was 9.6% lower.
Now that the IRA is signed into law, the fine print has some investors wondering just how helpful it might be for these early-stage EV companies. All three of these companies need EV ownership to expand to support their business models.
EV sales just passed the threshold of 5% of new car sales in the U.S. Many of the early buyers are wealthy individuals, as EV prices still trend higher than their internal combustion counterparts. But tax credits in the IRA won't help spur wealthy car buyers to go electric. And other requirements for manufacturers will also limit who can benefit from the new law.
The legislation includes a $7,500 tax credit for buyers of some clean energy vehicles that will last through December 2032. But that credit has several restrictions attached to it. Buyers won't qualify if their modified adjusted gross income is above $150,000 for single taxpayers. Filers listed as head of household will have a $225,000 income limit, and for couples filing jointly the limit is $300,000.
Additionally, vehicles themselves won't qualify in some cases. EVs defined as vans, sport utility vehicles (SUVs), and pickup trucks with a manufacturer's suggested retail price over $80,000 won't qualify. Electric cars must retail at less than $55,000 to qualify.
Lordstown hasn't begun selling its Endurance pickup truck yet. The vehicle will be manufactured by contractor Foxconn after the two companies closed an agreement that gave Foxconn ownership of Lordstown's original manufacturing facility. That deal injected needed capital into the struggling EV company. Many believe the base price for the Endurance will allow it to qualify for the tax credits, but it might not take many upgrades to push it over the limit, based on other EV pickup trucks that are on the market like Rivian Automotive's R1T.
There will be other limitations for qualification including requirements for batteries to have at least 50% of the value of their components made in North America. That level rises steadily to eventually reach 100% after Dec. 31, 2028. Minerals used for batteries have similar, but separate requirements.
All told, the restrictions and requirements that are intended to boost EV sales in the U.S. are complex in the IRA. Many stocks like ChargePoint, Blink, and Lordstown that had run up in anticipation of the bill being passed are now retreating as more details emerge.