The Biden Administration released new guidance to determine which electric vehicles will qualify for $7,500 tax credits under the Inflation Reduction Act. The proposed rules (you can download them here) are complicated, addressing where battery minerals and components come from, where they are assembled and numerous other criteria.
Here’s what will matter most to would-be EV purchasers in the United States: After April 18, fewer EVs will qualify for the full $7,500 tax credit, because not enough of their battery content comes from North America or countries friendly to the United States. (Translated: Not China.)
Tesla this week told shoppers on its website that the cheapest version of its Model 3 sedan likely won’t qualify for the full $7,500 credit. It has a Chinese lithium-iron LFP battery.
“This period may go down as the highwater mark for EV tax credit eligibility since the IRA passed last year,” John Bozzella, head of the industry trade group Alliance for Automotive Innovation wrote Friday on his blog.
I’ll give you a minute to go online and place that order….
In China, the sunset late last year of relatively generous EV subsidies triggered a rush to dealerships. The same could be expected in the United States – although inventories are tight for many of the EVs that currently qualify for $7,500 tax credits. (A list is here.)
The constriction of consumer-facing federal EV subsidies will put more pressure on legacy manufacturers still trying to turn a profit on EVs. The $7,500 per vehicle that Uncle Sam contributed, albeit indirectly, was a big help.
Now automakers whose batteries don’t meet the made in North America tests will have to fiddle with prices in search of the sweet spot where demand stays strong without incurring more losses.
Ford didn’t wait: It raised prices this week for its popular F-150 Lightning electric truck. (Ford plans to use Chinese LFP batteries in the Lightning and the Mustang Mach-E.)
Today’s action is a long way from the last word on U.S. EV subsidies. Political fights over IRA spending are heating up. U.S. trade partners will keep working to bend interpretation of the IRA standards to their benefit.
And in two years, U.S. national elections could install a President and a Congress who want to go in a different direction altogether.
