Big news out of the federal government could be a big boon for certain automakers.
The Treasury Department said yesterday it would delay releasing proposed guidance regarding the sourcing of EV batteries that are part of the Inflation Reduction Act’s (IRA) new $7,500 EV tax credit.
The IRA’s rules regarding the EV tax credit require that $3,750 of the credit is only eligible if 40% of the value of the critical minerals in the battery have been “extracted or processed” in the U.S., or a country with a U.S. free-trade agreement. The Treasury has delayed guidance for this requirement until March, instead of January 1, 2023.
The other $3,750 portion of the credit is contingent on having 50% of the battery components built in North America. The IRA EV tax credit also requires that EVs are assembled in North America, along with pricing ($55,000 for cars and $80,000 for trucks, SUVs) and income requirements to meet in order to receive the credits.
The delay in the critical minerals guidance is a big deal for manufacturers like GM (GM) and Tesla (TSLA), because they are going to be reinstated into the EV tax credit regime on January 1st. Under the prior rules of the EV tax credit, GM and Tesla were phased out of any credits because they had reached the overall sales threshold of 200,000 EVs sold for those credits.
In addition, GM and Tesla were likely only going to receive half the tax credit due to the battery critical minerals requirement. The delay until at least March means for most of Q1 and possibly beyond, some of their EV offerings will be eligible for the full EV tax credit of $7,500, assuming the buyer has met the income requirements.
GM and Tesla Vehicles that are eligible for the full tax credit include:
Chevrolet Bolt EV and EUV
Tesla Model 3 (rear wheel drive)
Tesla Model Y (long range & performance trims)
Note that Ford, which is also eligible for the tax credit but was never phased out, is also eligible for the full tax credit too for certain vehicles. Here are some notable non-GM or Tesla models that are eligible for the full credit starting January 1:
Ford Mustang Mach-E
Ford F-150 Lightning
Ford E-Transit Van
Jeep Wrangler 4xe
Jeep Grand Cherokee 4xe
Rivian R1T (dual motor)
Members of media and guests surround the Tesla Model 3 during Thailand Tesla’s official launch event in Bangkok, Thailand, December 7, 2022. REUTERS/Athit Perawongmetha
Another big factor that is awaiting more guidance is the exemption for commercial clean vehicles, which would allow the full EV tax credit for leasing vehicles, regardless of country of assembly. Senator Joe Manchin (D-WV), who was instrumental in creating the IRA’s tax credit incentives, says Treasury should limit the use of the commercial EV tax credit for leasing.
“Some automakers and foreign governments are asking your agency for a broad interpretation of 45W that would allow rental cars, leased vehicles, and rideshare vehicles (such as those used for Uber and Lyft), a huge piece of the U.S. vehicle market, to be eligible for the full $7,500 commercial vehicle credit as a way to bypass the strict sourcing requirements,” Manchin wrote in a letter to Treasury, noting his concerns.
Pras Subramanian is a reporter for Yahoo Finance. You can follow him on Twitter and on Instagram.
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