Daily Bulletin: Relaxation of Some EV Battery Regulations Could Increase Number of Cars Eligible for Tax Credits

By Better Today On May 3, 2024

TL/DR –

The U.S. government has revised regulations concerning electric vehicle (EV) tax credits, potentially expanding the number of EVs eligible for credits of up to $7,500. The changes, under the 2022 Inflation Reduction Act, grant automakers a longer period to comply with certain requirements about the origin of battery minerals. However, the decision has drawn criticism, with claims that it aids China and other nations considered antagonistic to the U.S., which dominate parts of the EV battery supply and production.

US Government Eases Rules on Electric Vehicle Tax Credits

The US government has eased certain regulations related to electric vehicle tax credits, potentially increasing the number of electric vehicles (EVs) eligible for up to $7,500 in credits. The Treasury Department announced these regulations under the 2022 Inflation Reduction Act, allowing automakers additional time to comply with provisions regarding the source of battery minerals.

These credits, ranging from $3,750 to $7,500 for new EVs and including a $4,000 credit for used ones, are intended to stimulate demand for EVs as part of the Biden administration’s aim to make half of all new vehicle sales electric by 2030.

Qualifying for the credits is based on the buyer’s income, the vehicle’s price, and increasingly strict requirements regarding battery composition and minerals. To qualify, EVs must be assembled in North America, and certain plug-in hybrids may also qualify.

These new rules are being phased in to promote the development of a domestic electric vehicle supply chain, limiting tax credits for cars containing battery materials from countries considered hostile to the US, such as China, Russia, North Korea, and Iran.

However, the final rule exempts small amounts of specific minerals used in batteries from these restrictions until 2027. Without this exemption, tiny untraceable amounts could disqualify some vehicles from tax credit eligibility.

Despite these controversial exemptions, industry representatives such as John Bozzella, CEO of the Alliance for Automotive Innovation, see the rule as a necessary move towards the transformation of the US industrial base for the EV transition.

At present, of the 114 EV models sold in the US, only 13 qualify for the full $7,500 credit.

Despite the tax credits, the growth of electric vehicle sales slowed in the first quarter of 2021. The slowdown, led by Tesla, confirmed automakers’ concerns about the rapid pursuit of EV buyers.

“The Inflation Reduction Act’s clean vehicle credits save consumers up to $7,500 on a new vehicle, and hundreds of dollars per year on gas, while creating good paying jobs and strengthening our energy security,” stated Treasury Secretary Janet Yellen.