New EV Tax Credit Rules Mean Fewer Discounts For Car Shoppers – By Sasha Lekach (Forbes Wheels)

New EV Tax Credit Rules Mean Fewer Discounts For Car Shoppers – By Sasha Lekach (Forbes Wheels)

New EV Tax Credit Rules Mean Fewer Discounts

New EV Tax Credit Rules

Many electric vehicles will soon lose a federal tax subsidy after more stringent qualifying rules were released by the U.S. Department of the Treasury Friday. The federal clean vehicle tax credit has been refining program requirements since its passage as part of the Inflation Reduction Act (IRA) in August 2022. The latest rules determining which vehicles are eligible for up to $7,500 for a “clean” vehicle (this includes all-electric, plug-in hybrids, and alternative energy sources like hydrogen fuel cells) will go into effect on April 18. Any cars purchased on that date and thereafter will follow the updated guidelines.

Previously the IRA had set eligibility requirements based on customer income level, vehicle manufacturing based in North America, and an MSRP limit on the vehicles ($80,000 or less for a van, pickup truck, or SUV or $55,000 for cars and others). The April rules layer in requirements based on critical mineral sourcing and battery components. If a vehicle meets one of the two new requirements it will qualify for only half of the $7,500. It needs to hit both for the full amount.

Updated EV Tax Credit Percentages
Battery Component Requirement50%60%60%70%80%90%100%
Critical Mineral Requirement40%50%60%70%80%80%80%
Source: U.S. Department of the Treasury

Two New Requirements

The detailed guidelines break down into two new requirements about critical minerals and battery components. Critical minerals must be extracted or processed in the U.S. or a free trade partner country. For 2023 40% of minerals must be U.S. sourced. It goes up to 50% in 2024, then 80% in 2027. On the battery component side, 50% (for 2023) of the value of the battery parts must be made in North America.

Starting in 2024 none of the batteries can be manufactured in a “foreign entity of concern” (which includes China) and in 2025 none of the minerals can be sourced from those specific countries. But the Treasury and IRS said they will give further guidance on this front.

Luckily for car shoppers, the onus for determining the percentages of battery parts is on the car manufacturers. Zero Emission Transportation Association regulatory director Thomas Boylan told Forbes Wheels ahead of the official guidance that, “Ultimately a lot of this will happen ‘behind the scenes’” but it will “tip the cost calculation in the consumer’s head” when shopping for a new car.

If the goal is more than just building out the American supply chain for batteries and EVs, this could hinder the broader goal of getting more EVs on the road.

The Tesla Model Y battery pack made in Germany would not qualify for federal EV tax credits under new requirements about mineral and battery component sourcing. Patrick Pleul/Picture Alliance/Getty Images

Tesla (and others) on the Chopping Block

Tesla is an example of an automaker that had two vehicles that qualified based on vehicle manufacturing requirements (Tesla has plants in the U.S.), but will no longer offer the full credit because of battery and mineral sourcing and manufacturing out of China.

Battery-parts-and-minerals-friendly countries outside of the U.S. will include Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Japan, Jordan, Korea, Mexico, Morocco, Nicaragua, Oman, Panama, Peru, and Singapore.

The Tesla website had listed on its Model 3 and Model Y pages that customers would soon no longer be eligible for the available credit and urged interested customers to buy sooner rather than later. Now the official cutoff for purchases to qualify for the credit based on the previous rules is April 18.

Volkswagen with its ID.4 electric SUV was still determining if the Tennessee-assembled EV would still be eligible as it has been in the first quarter of 2023.

In a statement, VW America cautiously supported the developing IRA guidance and flagged eligibility for leased EVs, “The IRA has the potential to strengthen growth in e-mobility while boosting jobs connected to the clean transportation economy. VWGoA is encouraged by the availability of incentives for leased EVs. Further, we look forward to continuing to support the U.S. Treasury as it develops guidance related to other EV incentives for consumers as well as U.S. battery production incentives.”

The statement continued, “We are carefully reviewing the draft guidance and are consulting with our supply chain partners to evaluate [battery component and critical mineral requirements]. We aim to determine eligibility of the ID.4 going forward, and will share more soon.”

On the other hand, many EVs from General Motors brands like Chevy (the upcoming Equinox EV and Blazer EV) and Cadillac (Lyriq) should be good for full credit through the rest of 2023. Others like the Chevy Bolt EV and EUV might no longer qualify.

In a statement, the U.S.-based company called itself “well-positioned.” It continued, “This is possible because of GM’s historic investments in the U.S. to transform our portfolio, strengthen American manufacturing and jobs, and localize and build more secure and resilient supply chains. This is a strategy that we have been executing for some time now that’s very well aligned with the goals of the U.S. government’s recently passed policies to accelerate EV production and adoption.”

Another American brand, Ford, thanked the Biden administration for “working through the important details of the IRA to provide clarity to our industry and our customers. Ford continues to accelerate our investment in America thanks to this important policy initiative.” The statement from Ford CEO Jim Farley said the company would help customers figure out if they’re eligible for credits on Ford EVs like the F-150 Lightning and Mustang Mach-E. By Wednesday, Ford had determined the breakdown of its EV and PHEV lineup, with only the pickup and Lincoln Aviator plug-in qualifying for the full credit:

  • Ford F-150 Lightning: $7,500 credit
  • Ford Mustang Mach-E: $3,750 credit
  • Ford E-Transit: $3,750 credit
  • Ford Escape Plug-In Hybrid: $3,750 credit
  • Lincoln Corsair Grand Touring: $3,750 credit
  • Lincoln Aviator Grand Touring: $7,500 credit

Hyundai’s brands (Hyundai, Kia, and Genesis) are investing $5.54 billion in EV and battery manufacturing facilities in Georgia, a spokesperson said in an email statement. But production there won’t begin until the first half of 2025, which could be an issue for its EVs like the Hyundai Ioniq 5 and 6, Kia EV6, and others.

For the next 18 days, ZETA’s Boylan says there might be more urgency to buy a clean car before the new rules kick in. But even after the April 18 deadline at least there’s now “helpful clarity” on the interim guidance.

UPDATE Monday, April 17: A complete list of eligible vehicles for the full and partial federal tax credits for vehicles placed into service on or after April 18 was released Monday and includes 11 all-electric options and six plug-in hybrids. General Motors was able to include its Bolt lineup for the full $7,500 credit.

The full list of EVs includes:
2023-2024 Cadillac Lyric
2024 Chevy Blazer EV
2022-2023 Chevy Bolt EV
2022-2023 Chevy Bolt EUV
2024 Chevy Equinox EV
2024 Chevy Silverado EV
2022-2023 Ford E-Transit
2022-2023 Ford F-150 Lightning
2022-2023 Ford Mustang Mach-E
2022-2023 Tesla Model 3
2022-2023 Tesla Model Y

The list of partial ($3,750) credit vehicles includes:
2022-2023 Chrysler Pacifica PHEV
2022-2023 Ford Escape Plug-In Hybrid
2022-2023 Jeep Grand Cherokee PHEV 4xe
2022-2023 Jeep Wrangler PHEV 4xe
2022-2023 Lincoln Aviator Grand Touring
2022-2023 Lincoln Corsair Grand Touring

The Zero Emission Transportation Association (ZETA) determined that 90% of EVs are still eligible for some or all available credit.

“U.S. demand for EVs is extremely high, and it is important to continue to serve that demand as companies invest in additional U.S. capacity across the supply chain,” Albert Gore, ZETA executive director said in an email statement on Monday.

Post Credit –  Originally posted here