The Internal Revenue Service (IRS) announced Friday that it would propose rules that would make it more difficult for a number of new electric vehicles (EVs) to qualify for tax breaks, according to a news release.
Starting April 18, the IRS will enforce a domestic sourcing requirement for minerals and components used in EV batteries, the agency
said. Analysts say that a number of new EVs won’t qualify for a clean vehicle tax credit of $7,500 that was implemented under the Inflation Reduction Act that was passed last year.
The act “allows a maximum credit of $7,500 per vehicle, consisting of $3,750 in the case of a vehicle that meets certain requirements relating to critical minerals and $3,750 in the case of a vehicle that meets certain requirements relating to battery components,” the IRS said. “The critical mineral and battery component requirements will apply to vehicles placed in service on or after April 18, 2023, the day after the Notice of Proposed Rulemaking is issued in the Federal Register.”
A list of vehicles that will or will not be impacted by the rule change was not given by the IRS on Friday. The IRS issued another release detailing some of the requirements.
To qualify under the new rules, the IRS said that an EV must have a battery capacity of at least 7 kilowatt hours, have a gross vehicle weight of fewer than 14,000 pounds, be “made by a qualified manufacturer,” and those vehicles have to go through a final assembly in North America. The vehicle also has to be new and the seller has to report “your name and taxpayer identification number to the IRS for you to be eligible to claim the credit,”
the release said.
It also said there are price and income caps, including $55,000 for sedans as well as $80,000 for trucks, vans, and SUVs. A list of EV manufacturers was placed on the IRS
website.
Under the old rules, it “temporarily qualified some vehicles, like the Chevy Bolt, and some Tesla models, for the full $7,500 credit,”
said electric vehicle website Electrek. “Both GM and Tesla have previously stated that they expect to lose access to some of the credit when the new battery rules go into effect (though with Tesla, this only applies to their cheapest model).”
Reactions
Some auto groups expressed their displeasure with the latest rule change.
“The proposed guidance continues to highlight the challenges ahead for U.S. automakers’ electrification efforts and consumers’ adoption of clean vehicles,” Jennifer Safavian, CEO and president of Autos Drive America,
told Ars Technica. “The number of vehicles eligible for even a partial tax credit has been significantly reduced, slowing adoption of electric vehicles, under the new rules. Autos Drive America members are committed to an electrified future for our customers and look forward to continuing to collaborate with Treasury as the guidance is finalized.”
John Bozzella, president and CEO of the Alliance for Automotive Innovation, told the outlet that he believes only few of the 90 or so electric vehicles that are on sale in the United States will be eligible for the tax credit starting next month.
“Some EVs will certainly qualify for a partial credit. 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
warned to Reuters.
Sen. Marco Rubio (R-Fla.) introduced legislation this month seeking to block EV tax credits for batteries produced using Chinese technology, saying it would “significantly restrict the eligibility of IRA tax credits and prevent Chinese companies from benefiting.”
More Details
The rules are aimed at weaning the United States off dependence on China for EV battery supply chains and part of President Joe Biden’s effort to make 50 percent of U.S. new vehicle sales by 2030 EVs or plug-in hybrids. The U.S. Department of the Treasury is not immediately issuing guidance on “Foreign Entities of Concern,” a provision due to start in 2024 barring credits if any components or minerals used in EV batteries are made in countries like China.The $430 billion Inflation Reduction Act signed by President Biden in August eliminated manufacturers’ EV sales caps, but imposed new conditions on EV credits. They included a North American assembly requirement from August, price and buyer income eligibility caps from Jan. 1, and now the battery and critical minerals sourcing rules, effective April 18.
The public will have until mid-June to comment on the proposed guidance.
Reuters contributed to this report.
