Why is There a Delay in Clarifying EV Tax Credits?
If you’ve been thinking about buying an electric car, you’ve probably read a lot about the incentives available, and the new rules that the federal government was going to implement on January 1. In short, a total of $7,500 is available for hybrids, plug-in hybrids, and electric vehicles – but those credits are contingent on where the vehicles are manufactured and where materials in their battery are sourced.
$3,750 is available to purchasers of electric vehicles that are made in the north American free trade region – Mexico, Canada, or the U.S. The other $3,750 requires that the batteries contain minerals and parts from North America. Other restrictions apply, such as a starting MSRP of $55,000, or $80,000 for SUVs or trucks, and a maximum individual income of $150,000, or $300,000 for a household.
However, in late December, the federal government announced that it will not finish vetting the rules which govern where battery minerals and parts have to come from until March. Vehicles purchased between January 1 and that date may therefore qualify for the $3,750 battery incentive, no matter where their batteries’ parts and minerals are sourced.
Encouraging North American EV Battery Production
The aim of the new incentives was to reduce American reliance on batteries which are currently made in China, with minerals sourced from all over the world. The requirement was to be that 50 percent of the battery’s parts must come from North America, and 40 percent of its minerals had to come from North America, or a country with a free-trade agreement with the U.S., with those percentages rising annually.
Battery production is very complex and expensive, and automakers have criticized the restrictions around battery sourcing and assembly as overly complex and unrealistic in the short term. Meanwhile, the government is finding that tracing the source of minerals and components is more complex than expected.
Many automakers were anticipating that their vehicles wouldn’t qualify for the full $7,500 in incentives available come January, as even electric cars made in the U.S. mostly use batteries sourced from foreign countries.
General Motors, for instance, has indicated in the past that it expects its EV models like the Chevrolet Bolt to only qualify for half the credit until at least 2025, when its local battery production comes online. Foreign automakers, many of which are already in the process of establishing battery production in the U.S., are also upset. Their vehicles won’t be eligible for the $3,750 either, until several years in the future.
You Could Save Thousands if Your EV Qualifies for Tax Credits
What does this mean for you? If you’ve been considering an electric vehicle that would be eligible for tax credits in 2023 – and you meet all of the requirements – now may be the time to buy. Until the government provides clear direction on mineral and battery component sourcing requirements, many EVs that would only qualify for $3,750 in credits will be eligible for $7,500.
Actually finding a new EV may be the bigger challenge. With demand for EVs at an all-time high, and continued production challenges thanks to semiconductor shortages, many electric cars already have long waiting lists.
Use the GreenCars EV Incentives resource for a personalized look at how much you could save.