New regulations have tightened the rules around the availability of tax credits for electric vehicles (EVs), potentially reducing the number of eligible vehicles by up to $7,500 starting January 1.
This change means that some popular models, like the entry-level Tesla and Ford’s Mustang Mach-E, will no longer qualify for these tax incentives, as confirmed by their respective manufacturers.
However, there is a silver lining for consumers: the tax credits can now be applied directly at the time of purchase through a dealer, rather than waiting months for the benefit to appear in their tax returns.
The updated guidelines, released by the Treasury Department in December, are aimed at making it more challenging to obtain the full tax credit, particularly for vehicles containing materials sourced from designated “foreign entities of concern,” which includes China among other countries.
While the agency hasn’t published a comprehensive list of qualifying cars, a few automakers have preemptively addressed the eligibility of their products based on the impending regulations.
Previous criteria such as income requirements, vehicle weight, and price limits—$80,000 for larger vehicles and $55,000 for others—still apply.
Several automakers, like General Motors and Hyundai, are swiftly developing U.S.-based factories to produce batteries and handle essential materials like lithium. However, achieving a completely China-independent electric vehicle production process is still a few years away.
Mobility analyst Sam Abuelsamid from Guidehouse Insights predicts that many EVs currently qualifying for the full $7,500 tax credit might only receive half that amount when the new rules kick in.
Meeting the requirement that 60% of battery parts originate from North America next year could enable automakers to qualify for a $3,750 tax credit. Still, obtaining an additional $3,750 credit by sourcing batteries primarily from the U.S. or countries with free trade agreements will be notably challenging.
Interestingly, customers opting to lease an EV can still receive the full tax credit, as these vehicles are classified as commercial and exempt from specific manufacturing and battery-content requirements related to North American origins.
The law’s primary aim is to encourage higher adoption rates of electric vehicles, which currently account for around 7.5% of total sales through November 2023.
Experts believe that reducing EV prices will play a crucial role in attracting consumers, especially considering the average EV price currently hovers above $65,000, while used models remain scarce and relatively untested in the market.
