Electric vehicles could lose $7,500 tax credit under new rules

Eligibility for key tax credits could be reduced or lost altogether for a number of electric vehicles in the coming month.

When April 18 arrives, the EVs will be subject to new rules that impose critical mineral and battery component sourcing requirements that could cause their eligibility for a clean vehicle tax credit to be lost. The Department of the Treasury unveiled a notice of proposed rulemaking on the matter Friday.

The Treasury Department said the new guidance was intended to reduce costs for consumers, build a resilient industrial base, and spur manufacturing in the U.S., as well as strengthen supply chains with like-minded partners that are vital to energy security. The proposed rule says that the starting percentage of battery components required to be made or assembled in North America will come in at 50% for 2023 and will reach 100% in 2029, after having been upped each year in the interim.

According to the Treasury Department, 40% of the value of the batteries must be extracted or processed in the United States or a country with which the United States has a free trade agreement or recycled in North America for this year, according to the proposed guidance on critical minerals. The required percentage will increase by 10% each year until it reaches 80% in 2027.

If a newly-purchased EV meets the proposed mineral and battery component requirements, it can get $7,500 credit, according to the Treasury Department. If it only meets one of them, the EV will have it for $3,750.

A Biden administration official told reporters that it was not clear how many vehicles would be eligible for a tax credit under its proposed rules, according to a report by Fox News Digital.

The manufacturers of EVs give the information directly to the Internal Revenue Service, according to the blog post by Alliance for Automotive Innovation CEO John Bozzella.

He said that this latest turn will reduce the number of eligible EVs. In the near term, less vehicles and fewer customers will qualify for the full $7,500 credit. Bozzella suggested that few of the 91 models currently for sale would be eligible for the $7,500 credit under the new rules. He said that some people will certainly qualify for partial credit. A notice visible Friday on Tesla's website said the $7,500 tax credit is expected to be reduced for Model 3 starting April 18.

Democratic West Virginia Sen. Joe Manchin slammed the Treasury Department's guidance in a statement, arguing that it completely ignores the Inflation Reduction Act's intent.

There is a provision banning EVs from having battery components produced by a foreign entity of concern come 2024, and critical minerals from such entities as of 2025 if they want the tax credit eligibility, according to the Treasury Department. The agency said it will issue guidance in the future. The Administration continues to ignore the purpose of the law, which is to bring manufacturing back to America and ensure we have reliable and secure supply chains, he said. American tax dollars shouldn't be used to support manufacturing jobs overseas. It is a pathetic excuse to spend more tax dollars as quickly as possible and further cedes control to the Chinese Communist Party in the process. The Inflation Reduction Act, the legislation that governs things like North American final assembly stemmed from President Joe Biden's signature, became law over seven months ago.

There is a list of vehicles that currently have eligibility for a credit on a U.S. government-owned website. The information will be updated when the new proposed rules go into effect, which will be subject to a public comment period.