DETROIT– The US government has slightly relaxed some rules for electric vehicle tax credits, potentially making more electric vehicles eligible for tax credits of up to $7,500.
The Treasury Department on Friday announced final regulations for credits under the 2022 Inflation Reduction Act, giving automakers more time to comply with some provisions on where battery minerals can come from.
The credits range from $3,750 to $7,500 for new EVs. There is also a $4,000 credit for used copies.
They are intended to boost demand for electric vehicles in an effort to reach the Biden administration’s goal of half of all new vehicle sales being electric by 2030. This year, the credits will be available at the time a vehicle is purchased from an authorized dealer, rather than waiting. for income tax refunds.
But eligibility for the credits depends on a person’s income, the price of the vehicles and battery composition and mineral requirements, which become more demanding every year. To get the credits, EVs must be assembled in North America. Some plug-in hybrids also qualify.
Starting this year, complex regulations will be phased in to promote the development of a domestic electric vehicle supply chain. The rules would prevent EV buyers from claiming the full tax credit if they buy cars that contain battery materials from China and other countries considered hostile to the United States.
The new rules largely target battery components from “countries of concern” – mainly China, but also Russia, North Korea and Iran.
This year, half of the critical minerals in an EV battery must be mined or processed in the US, or in a country with which the country has a free trade agreement. Sixty percent of battery parts must be made or assembled in North America.
From 2025, batteries containing critical minerals from countries of concern would no longer be eligible for tax benefits. But after receiving comments from the auto industry and others, Treasury Department officials decided to relax that restriction.
Small amounts of graphite and other minerals would be exempt from the restriction until 2027 because their country or origin is virtually impossible to trace. Without the exemption, some vehicles that met almost all requirements could be ineligible for tax credits due to small amounts that could not be traced, officials said.
The change will likely make more electric vehicles eligible for credits in 2025 and 2026, but the auto industry says it’s hard to say until automakers trace the origins of all the minerals.
“The EV transition requires nothing less than a complete transformation of the American industrial base,” John Bozzella, CEO of the Alliance for Automotive Innovation, a major industry trade group, said in a statement. “That’s a monumental task that doesn’t – and it can’t happen overnight.”
The rule change, he said, “makes sense for investment, job creation and consumer adoption of electric cars.”
Currently, China dominates crucial parts of EV battery supply and production, even as automakers rush to establish key minerals and components efforts elsewhere.
Of the 114 EV models currently sold in the U.S., only 13 are eligible for the full $7,500 credit, the alliance said.
Despite the tax breaks, electric vehicle sales grew just 3.3% to almost 270,000 from January to March this year, far below the 47% growth that delivered record sales and a 7.6% market share last year. The slowdown, led by Tesla, confirms automakers’ fears that they have moved too quickly to chase EV buyers. According to Motorintelligence.com, the EV share of total US sales fell to 7.15% in the first quarter.
“The Inflation Reduction Act’s clean vehicle credits will save consumers up to $7,500 on a new vehicle, and hundreds of dollars a year on gasoline, while creating good-paying jobs and strengthening our energy security,” Treasury Secretary Janet Yellin said in a statement.