By Kelley R. Taylor
Last updated 3 April 2023
Eagerly anticipated federal guidance on the EV tax credit was released earlier this year, limiting which electric vehicles qualify for the $7,500 tax credit under the Inflation Reduction Act (IRA). The proposed rules set out requirements for critical minerals and battery components that must be met for an EV or “clean vehicle” to qualify for the full $7,500 tax credit. Vehicles that don’t meet all of the requirements could end up being eligible for only half the tax credit ($3,750) or, in some cases, no credit at all.
The Treasury Department described the clean vehicle guidance as “an important step that will help consumers save up to $7,500 on a new clean vehicle and hundreds of dollars per year on gas, while creating American manufacturing jobs and strengthening our energy and national security.”
As of April 18, only a few EVs qualify for the full $7,500 tax credit. Some electric vehicles that don’t qualify include about nine models from mostly foreign manufacturers like Hyundai, Volkswagen, BMW, Rivian, Nissan, and Volvo.
New EV Credit Sourcing Rules
Under the IRA, the maximum clean vehicle credit is $7,500 per vehicle, but half that amount applies to vehicles that meet critical mineral component requirements. The other half applies to vehicles that meet battery component requirements. Vehicles that meet both types of requirements would qualify for the full EV tax credit for 2023.
- Critical Mineral Requirement: For 2023, 40% of the critical minerals contained in a credit-eligible EV battery must be extracted or processed in the U.S. or a free trade country, or recycled in North America. This percentage will increase by 10% each year until it reaches 80% in 2027.
- Battery Component Requirements: The percentage of battery components required to be sourced in North America for purposes of the tax credit starts at 50% this year and will gradually increase, ultimately reaching 100% by 2029.
The critical minerals and battery guidance released on March 31 by the IRS are proposed rules, with a 60-day public comment period before the rules become final. However, the battery and critical mineral component requirements apply as of April 18, 2023. Consequently, few electric vehicles are eligible for the full $7,500 tax credit compared to the previous day.
If you’re in the market for an electric car or EV SUV this year and hope to benefit from tax incentives, keep an eye on the IRS list of qualifying vehicles. This list will evolve, and your favorite EV may soon become eligible for the full tax credit.
Moreover, some Tesla models, including the Model Y and all units of the Model 3 series, are currently eligible for the full EV credit. It is crucial for consumers to stay informed about the latest developments related to electric vehicle credits.
