The federal tax credit for electric cars is going to alter in a manner that makes it significantly more appealing to consumers. Starting January 1, the incentive—up to $7,500 for qualified new EVs and $4,000 for qualifying used EVs—will be available when you purchase the vehicle, rather than when you file your taxes.
Even better, over 7,000 vehicle dealers have already signed up to ensure they can give the POS refund, accounting for almost half of all new car dealerships in the nation.
However, there is a catch: due to new constraints on the components that make up these zero-emission vehicles, there may not be many automobiles that qualify for the entire $7,500 credit come the new year.
This is because these credits were redesigned as part of President Biden’s Inflation Reduction Act. The process was fraught with wrangling, particularly with U.S. Senator Joe Manchin, regarding the ultimate purpose of the credits. Should they act as a catalyst for the sale of zero-emission cars that help battle climate change or as a tool to stimulate the expansion of the North American electric vehicle supply chain?
As is frequently the case, the solution ended up somewhere in the murky center. The credit was essentially divided in half. Vehicles are eligible for a $3,500 credit if manufacturers meet specific requirements about where they acquire battery materials, and another $3,500 if they follow similar guidelines regarding battery components. (Anything above that requires automobiles to be made in North America.) Those sourcing criteria will grow more restrictive beginning in 2024.
As a consequence, General Motors announced this week that only the Chevy Bolt would be eligible for the full tax credit beginning January 1. The more costly Cadillac Lyriq and the spanking new Chevrolet Blazer, on the other hand, will not. GM, the country’s biggest carmaker, has said that it has to expedite efforts to replace two minor components in order for the Blazer and Lyriq to meet the new regulations.
Meanwhile, Ford has said that only the F-150 Lightning will be eligible for the full $7,500 credit. The Lincoln Corsair Grand Touring SUV will get half of the credit, while the Mustang Mach-E, Lincoln Aviator Grand Touring plug-in hybrid, and E-Transit van will not.
Even Tesla, a corporation well-known for detecting and qualifying for renewable energy credits and subsidies, first said that its Long Range and RWD Model 3 variations would lose half the credit, only to subsequently reveal that they would lose the whole credit. Tesla has recently hinted that the Model Y may be disqualified as well.
As the new year approaches, more manufacturers will likely divulge which of their electric cars qualify—or do not—for the credit, and the Treasury Department will eventually build a list on its website.
All of this unpredictability reflects the degree of difficulty involved in developing an electric car in a world where the supply chain is still mainly centered in and around China. However, it also highlights the standards’ rather haphazard rationale.
