Getting a discounted electric vehicle is about to become harder

Riley Beggin, The Detroit News on

Published in Business News

WASHINGTON — It will soon become harder to get a full $7,500 tax credit for a new electric vehicle under proposed rules released Friday by the U.S. Treasury Department — and interested buyers should move fast.

New battery component and mineral requirements will go into effect on April 18, the day after the new rules are officially published in the federal register, slashing the list of around two dozen vehicles that have qualified without the requirements for the last three months, at least in the short term.

This period "may go down as the highwater mark for EV tax credit eligibility since the IRA passed last year," said John Bozzella, CEO of the Alliance for Automotive Innovation. "We now know the EV tax credit playing field for the next year or so. March 2023 was as good as it gets."

The long-awaited rules are the first major indicator of how the Biden administration will implement the marquee tax credit for electric vehicles passed through the Inflation Reduction Act — and while the law's requirements, written by centrist Democrat Sen. Joe Manchin, are rankling automakers, the administration has shown some early leniency to the industry.

The IRA "is lowering costs for American consumers, building a strong U.S. industrial base, and bolstering supply chains,” Treasury Secretary Janet Yellen said in a statement. These rules “will help consumers save up to $7,500 on a new clean vehicle and hundreds of dollars per year on gas, while creating American manufacturing jobs and strengthening our energy and national security."

In order to qualify for $3,250 of the $7,500 EV tax credits formed under the Inflation Reduction Act, a vehicle must have half of its battery components made in North America. To get the other $3,250, at least 40% of the value of the minerals in the battery must be extracted or processed in the United States, or come from a country the United States shares a free trade agreement with. Those thresholds rise annually for the next several years.


The vehicle must be built in North America and stay under $80,000 for a van, pickup truck or SUV or under $55,000 for a sedan. A final complicating factor comes into play in 2024: A vehicle is disqualified if any of its battery components come from a so-called "foreign entity of concern" like China or Russia. In 2025, that extends to any of its critical minerals.

The Treasury did not address this element of the law in its Friday rule, indicating they will issue separate guidance on it later in the year. How it's implemented will be a crucial question for car companies hoping to shape their supply chains to comply. For example, how will the government treat a mineral processed in China, but sent to an allied country like Japan to be put into a battery component before shipping to the United States?

The stringent requirements have been a major stressor for automakers hoping to capitalize on the federal subsidy and accelerate EV sales, and they have been the focus of vigorous lobbying since the law was passed. It has also been a point of tension between the Biden administration and lawmakers on Capitol Hill as they seek to both wean automakers off Chinese supply chains and build a greener economy.

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