For consumers shopping for an EV, new rules mean fewer models qualify for a tax credit
DETROIT– U.S. consumers looking to get a tax break on an electric vehicle purchase will have fewer models to choose from under new rules that limit the countries where automakers can buy battery parts and minerals — a potential blow to efforts to cut global warming emissions. earth by reducing cars.
The Inflation Reduction Act, which was signed into law in 2022, expanded tax credits ranging from $3,750 to $7,500 for the purchase of new and used electric vehicles, an effort by the Biden administration to spur demand toward its goal that half of all new vehicle sales will be electric by 2030. Eligibility for the credits depends on requirements regarding battery composition and minerals, which become more difficult each year.
Starting January 1, new rules favor U.S. domestic materials and manufacturing. The rules largely target battery components from “countries of concern” – mainly China, but also Russia, North Korea and Iran.
China dominates crucial parts of EV battery supply and production, even as automakers rush to establish major minerals and components efforts elsewhere. As a result, only 13 of the more than 50 electric vehicles on sale in the U.S. are eligible for the credits so far this year, compared to about two dozen models that were eligible in 2023.
The Tesla Model Y SUV, the Chevrolet Bolt compact car and the Rivian R1T pickup are all still eligible. But even different trim levels and variants of the same model now qualify differently; certain Teslas are no longer eligible.
This also applies to the Chevrolet Blazer SUV and the Cadillac Lyriq from General Motors; the Ford Mustang Mach-E; or the Nissan Leaf.
Automakers say they are scrambling to find parts that will make their models eligible for tax breaks, but those parts can’t be obtained overnight, especially as several automakers pursue the same goal.
Some experts said they expect the limited selection of electric cars eligible for tax credits will have only a passing impact on growing consumer acceptance, especially as automakers scramble to get their models qualified.
“There is still sufficient variety in terms of vehicles. There are still the incentives we will see from automakers as they balance their inventory. There are still automakers who will be working on their supply chains throughout the year to get back into the fold,” said Elizabeth Krear, vice president of J.D. Power’s EV practice. “This would be a short-term problem.”
A positive development for EV buyers this year is that for eligible vehicles, credits can be applied at the time of purchase, as long as the dealer covers the cost. That means buyers can more easily afford the purchase. More than 8,700 American dealers have signed up for this, the Treasury Department said last week.
General Motors is also taking $7,500 off its no-longer-eligible models, and there are other deals available across the market — even as automakers continue to lose money on electric vehicles.
And leased EVs aren’t covered by the new rules because they’re considered “commercial vehicles,” and aren’t subject to the same manufacturing and battery capacity requirements. That means consumers can get the full amount of credit on a lease, even if the vehicle doesn’t qualify when purchased. Industry experts and dealers expect another surge in EV leasing after doubling the share of EV purchases to 26% by 2023, according to consumer intelligence firm JD Power.
Electric vehicle sales grew 47% last year to a record 1.19 million, but electric vehicle sales growth slowed towards the end of the year. In December they rose by 34%. Sales of gas-electric hybrids grew by 54% to 1.2 million last year, with market share rising from 5.6% in 2022 to 7.7%.
According to the Environmental Protection Agency, the transportation sector is responsible for about 29% of total U.S. emissions. As the U.S. works to reduce its carbon footprint, it’s counting on consumers to adopt cleaner forms of personal transportation. EVs save significant emissions, says Jessika Trancik, professor of energy studies at the Massachusetts Institute of Technology.
Investments in electrification and charging infrastructure have driven electric vehicle purchases among early adopters, she said.
But affordability is a bigger concern for regular buyers than concerns about charging infrastructure, according to S&P Global mobility. According to Cox Automotive, the average cost for a new gas-powered vehicle in the U.S. in November was $48,247, about $4,000 less than an electric car. That is better than a year earlier, but still significant.
Trancik said buyers should consider the total cost of ownership, which for an electric car is generally lower than a gas counterpart, due to savings on maintenance and fuel.
Christina Burns, a sales and marketing coordinator in Tulsa, Oklahoma, said she wants to buy a new car later this year and would like to have something good for the environment. But due to uncertainty about tax breaks, higher upfront costs and concerns about charging, she is considering a hybrid or an efficient gas-powered vehicle instead of an electric car.
“The most confusing thing would probably be the government part of it. You get a break, don’t you? Will it apply next year, who knows?” she said. “You’re playing with whether the upside will be there when you’re ready to buy.”
___
AP Auto Writer Tom Krisher contributed.
___
Alexa St. John is an Associated Press climate solutions reporter. Follow her on X, formerly Twitter, @ast.john. Reach her at ast.john@ap.org.
___
The Associated Press’ climate and environmental reporting receives funding from several private foundations. AP is solely responsible for all content. Find AP’s Standards for Working with Charities, a list of supporters, and funded coverage areas at AP.org.