The United States Department of the Treasury issued updated guidance today about which electric vehicles qualify for the $7,500 federal EV tax credit under the Inflation Reduction Act (IRA) that President Biden signed into law last year. Although the new guidelines add more confusion than clarity, it is clear that fewer electric vehicles will be eligible.
The updated rules focus on the sourcing of minerals in electric vehicle batteries, stating that they must come from the US and from approved trading partners. That rules out China, which is labelled as a “foreign entity of interest”. While the US is understandably limiting its reliance on its most powerful adversary, most electric vehicles today are powered by batteries made in China, making the credit for purchases made after 18 the way to go. April is as clear as mud.
To receive tax credits, battery manufacturers must source a significant portion of their materials and manufacturing in North America. Battery components must be 50 percent manufactured or assembled in North America to qualify for a $3,750 credit; critical minerals must come 40 percent from the US or free trade partners for another $3,750 credit. The requirements get stricter over time, as the batteries must be made 100 percent in North America by 2029.
Although some electric vehicles may qualify for partial credits, it’s unclear which models will be eligible after the deadline. “Some electric vehicles will certainly qualify for a partial credit,” John Bozzella, president and CEO of the Alliance for Automotive Innovation, said in a statement. statement to autoblog. “Given the restrictions of the legislation, Treasury did the best it could to produce rules that are compliant with the statute and reflect the current market.” However, US officials admit that some models will be reduced or removed from the program. The government will publish a revised list of qualified models by April 18.
The United States and Japan signed a trade agreement on Tuesday that could help in the long run by adding the Pacific powerhouse to the list of approved partners. In October, the Biden administration announced $2.8 billion in grants for 20 companies to boost domestic EV battery production and materials. The funding, part of the Bipartisan Infrastructure Act, will support America’s new Battery Materials Initiative, which aims to secure critical minerals for electric vehicles and increase battery supplies to meet Biden’s goal of making electric vehicles to half of US vehicle sales by 2030.
