US EV Tax Credit Rules Officially Change April 18, 2023
The US Treasury Department has finally come forward with its official battery production and battery materials sourcing guidelines related to the newly revamped US federal tax credit. Sadly, as expected, few vehicles are going to qualify for the full $7,500 tax credit. Nonetheless, Treasury Secretary Janet Yellen shared:
“Today, Treasury is taking an important step that 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.”
We've known the changes were coming for some time now. When the new EV tax credit was first announced, it appeared there may not be any EVs on the market that would qualify. Many are made by foreign automakers, produced outside the US, and/or use battery packs and materials that aren't domestically sourced or produced. However, since the US Treasury hadn't published the official requirements, there has been a loophole for most EVs since the beginning of 2023.
Unlike the previous US federal EV tax credit, the newly established incentive has many more rules, and it can be complicated to understand. There are rules surrounding the price of the EV itself, the income level of the buyer, and the location where the EV is assembled. In addition, in an attempt to bring battery materials mining, refining, and manufacturing to the US, there are very specific rules regarding where the battery packs are assembled, as well as the origin of what's inside them.
When lawmakers drafted the bill and put together the language for the new credit, they split the maximum $7,500 credit into two equal parts. To get half of the credit ($3,750), 40% of the battery's critical materials must be either extracted or processed on our shores or from a country with a free trade agreement with the US.
The other $3,750 is available if, based on value, 50% of the EVs battery components – as well as the vehicle itself – are made in North America.
The percentages put into place by the US Treasury will go up over time, such that more and more of the battery materials and components will need to be sourced and produced domestically. By 2027, the "critical materials" portion will be at 80%. Meanwhile, the "component manufacturing" portion goes up to 100% by 2029.
This all means that it's not likely very many (if any) US-made EVs will qualify for the full credit, at least for now. President and CEO of the Alliance for Automotive Innovation John Bozzella made it clear he can't yet determine which EVs will qualify for the new credit and how much the credit for those cars will be. He explained:
“I don’t know. It’s not a question that can be answered today. Automakers will report directly to the IRS which EV models (effective April 18) meet the critical mineral and/or battery component requirements.”
Bozzella went on to share that there are about 90 EVs on sale in the US currently. After April 18, some of those EVs will qualify for at least a partial credit, but that's the only sure thing. What's more, the rules will continue to evolve, so a lot is still unknown at this time.