EV Tax Credit Rules to Tighten

Federal tax credits for new electric-vehicle purchases will soon tighten, eliminating many models from eligibility.

Starting April 18, the credits will shrink or be eliminated for some models.

Treasury Department guidance introduced on Friday lays out specific requirements for vehicles to be eligible for up to $7,500 in tax credits that have already spurred consumers to buy electric.

The credits were authorized in the Inflation Reduction Act passed last year and are aimed at greater EV adoption in an effort to reduce environmentally harmful emissions.

Tightening the rules around qualification for the credits is intended to steer carmakers away from EV battery supply chains in China, which has a significant share of the market for minerals needed for the batteries’ manufacture.

Under the act’s foundational requirements already in place, EVs must undergo final assembly in North America, and be under certain price levels per vehicle category, while buyers’ income is capped for tax credit eligibility.

Now battery material sourcing limits will be added next month, essentially determining which EV models qualify for the credits based on where their materials were sourced.

Depending on the material, the new restrictions get tighter each year. By 2027, 80% of “critical” minerals in EVs batteries must be sourced, processed or recycled in the U.S. or in a free-trade partner of the U.S. And by 2028, 90% of the value of a battery’s components must be made or assembled in North America.

Until now, credit eligibility has been determined using the requirements not involving battery components. Meanwhile, the Treasury Department was hammering out the parameters of the latter. So once those take effect next month, some previously eligible EV models will no longer comply.

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Originally posted on Auto Dealer Today