Enhancements to the EV Tax Credit are on the horizon, but finding it may become more challenging

The new year is set to bring a significant change to the federal tax credit for electric vehicles, which is expected to make it much more attractive for potential buyers. Starting from January 1, the rebate for up to $7,500 for qualifying new EVs and up to $4,000 for qualifying used EVs will be available at the time of car purchase, instead of being claimed when filing your taxes.

Moreover, the good news is that more than 7,000 car dealers have already signed up to make sure they can offer the point-of-sale rebate, accounting for almost half of all new car dealerships in the United States.

However, there’s a catch. There may not be many cars that qualify for the full $7,500 credit next year due to new restrictions coming into effect regarding the components that constitute these zero-emission vehicles.

The changes in the tax credits are a result of the President Biden’s Inflation Reduction Act, which involved significant negotiations, especially with U.S. Senator Joe Manchin, to determine the ultimate purpose of the credits. The two opposing views were whether they should be used as a sales incentive for zero-emission vehicles to combat climate change or to promote the development of the electric vehicle supply chain in North America.

Eventually, the credit was effectively split in two. Vehicles qualify for a $3,500 credit if the automakers follow certain guidelines on sourcing battery materials, and another $3,500 provided they adhere to similar rules for battery components. Starting in 2024, these sourcing requirements become more stringent.

This led to General Motors stating that only its Chevy Bolt will qualify for the full tax credit starting January 1, while the more expensive Cadillac Lyriq and the new Chevy Blazer will not be eligible. GM has to accelerate plans to replace two minor components for the Blazer and the Lyriq to comply with the new restrictions.

Ford mentioned that only its F-150 Lightning will qualify for the full $7,500 credit. The Lincoln Corsair Grand Touring SUV will be eligible for half of the credit, while the Mustang Mach-E, Lincoln Aviator Grand Touring plug-in hybrid, and E-Transit van won’t.

Tesla also reported that its Long Range and RWD Model 3 variants would lose the full credit. It also indicated that the Model Y might be similarly ineligible.

As the new year approaches, more automakers are expected to disclose which of their electric vehicles qualify for the credit, and ultimately the Treasury Department will compile a list on its website.

This entire situation underscores the complexity of building an electric vehicle in a world where the supply chain still largely resides in and around China. It also highlights the somewhat convoluted motivation behind these guidelines.


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