WASHINGTON — Only 10 electric vehicle models will qualify for a full $7,500 tax credit when increasingly stringent critical mineral and battery component sourcing requirements take effect Tuesday.
Seven models are eligible for a partial credit of $3,750 under the tougher eligibility rules, while nine previously eligible models would no longer qualify, according to an updated list released Monday.
Under the Inflation Reduction Act, buyers who meet certain income thresholds can get a tax credit of up to $7,500 for North American-assembled new EVs that also meet sticker price restrictions.
Starting Tuesday, the credit will be split in two, with $3,750 for EVs that have at least 40 percent of the value of the battery’s critical minerals extracted or processed in the U.S. or in a country where the U.S. has a free-trade agreement, or from materials that were recycled in North America. Another $3,750 is available if at least half of the value of the EV’s battery components are made or assembled in North America.
Those percentages ramp up over time, maxing out at 80 percent in 2027 for minerals and 100 percent in 2029 for battery components.
Despite those restrictions, consumers looking to purchase EVs will still have credit-eligible options in the near term, while incentivizing automakers and their battery partners to continue ramping up U.S. production, a Biden administration official said.
Nearly 65 percent of EV sales in the first quarter of 2023 qualified for the credit under the North American assembly and sticker price requirements, according to a preliminary analysis by the administration. More than 90 percent of those previously eligible first-quarter sales remain eligible under the EV battery sourcing requirements, the analysis found.
“March 2023 was as good as it gets,” John Bozzella, CEO of the Alliance for Automotive Innovation, which represents most major automakers in the U.S., said of vehicle eligibility in a March 31 blog post.
“Given the constraints of the legislation, Treasury’s done as well as it could to produce rules that meet the statute and reflect the current market,” he wrote.
In a statement Monday, Bozzella said the updated list of eligible vehicles “isn’t a surprise.”
“Keep in mind: The IRS guidance isn’t frozen in time. The content thresholds will ramp up in the coming years,” he said. “The IRS list of qualifying vehicles could also change over time (both up and down) as supply chains localize and our country partners with allies on mineral agreements — something that is well underway.”
The previous tax credit’s 200,000-unit-per-automaker sales cap was eliminated for vehicles sold on or after Jan. 1, allowing EVs produced by Tesla and GM to qualify again.
GM was the only automaker with all of its eligible EVs qualifying for a full credit, according to the updated list.
Foreign automakers including BMW, Genesis, Nissan and Volkswagen all had vehicles previously eligible for the tax credit. None of their vehicles currently qualify under the new restrictions, the list showed. However, some automakers such as Hyundai Motor Group and Nissan have plans to manufacture EVs in the U.S., eventually allowing some models to qualify for at least a partial credit in future years.
Rivian Automotive’s EVs — the R1S and R1T — also were removed from the list of qualifying vehicles.
It is unclear how the number of eligible vehicles might be further slashed next year when the EV battery sourcing rules toughen and additional exclusions take effect.
Starting in 2024, vehicles are ineligible if they contain any battery components that are manufactured by a “foreign entity of concern,” which could include companies controlled by China. That exclusion starts in 2025 for critical minerals.
Treasury still needs to release guidance on how strictly it will enforce the provision.
