US Government updates EV tax credit rules - some electric cars no longer qualify

02 April 2023

The long-awaited US Treasury rules on battery components sourcing and manufacturing have finally been announced. The new rules apply to all-electric cars sold in the US but the government is giving a two-week grace period for anyone to be able to complete the purchases under the old rules.

The battery guidance was meant to be released last year but as the government struggled to come up with it on time, the new EV tax credit was introduced as a single component and only the rules of the vehicle origin were applied. It meant that any electric car manufactured in the US, and under the threshold price, qualified for the $7,500 tax credit for the buyer.

As of April 18, this tax credit is split into two separate components. The first $3,750 will be applied to all vehicles made in the US with at least 50% of the battery components made in the US as well. The second $3,750 will be granted to cars with batteries that contain a minimum of 40% of its critical minerals coming either from the US or a country that has a free-trade agreement with the US.

The second part requirement will be increased to 80% by 2027 and the 50% requirement for the battery components to be made in the US, will go up to 100% by 2029. The increase in both requirements will be introduced gradually every year between now and the deadline. This will result in a fluid list of vehicles qualifying each year but the US government believes it will speed up the investment in battery production in the country.

But that’s not all. Beginning next year, any electric vehicle with a battery containing any components made by a “country of concern” will be automatically disqualified from a full EV tax credit. Unfortunately, China is classed as such and it means big changes to the qualified vehicle list. The same approach will be applied to the battery minerals - any mineral coming from the “country of concern”, even in the smallest amount, will mean instant disqualification.

On top of that, the US government is introducing a list of “foreign entities of concern” to which the same restrictions will apply. It means that Chinese companies won’t be able to bypass the restrictions simply by setting up shop in the US - this will put a question mark on at least some of the planned investments into battery manufacturing.

The updated regulations already are having an effect, Tesla’s entry-level Model 3 no longer qualifies for the full $7,500 tax credit due to its battery coming from China. Currently, there are 39 vehicles on the EV tax credit list but this will change in the next couple of weeks.

Via