Once upon a time, if you wanted to buy an electrified vehicle, you could qualify for a tax credit of up to $7,500 — provided that particular car manufacturer hadn’t yet exceeded the number of eligible vehicles it could sell with that incentive attached.
Sounds a bit complex, right? Today, EV buyers are probably wishing things were that simple.
The finalized EV and plug-in hybrid tax incentive rules go into effect this week. And while they do manage to modernize and refine the old program — including getting rid of the old limit on how many cars were eligible — they also significantly cut down on the number of EVs and PHEVs available for a tax break at this time.
The new rules have been in the works since late last year, but it wasn’t until this week that stipulations around battery sourcing and so-called “critical minerals” took effect as well. As The Verge pointed out Monday, only six vehicles currently on the market (that qualifier is important) are eligible for the full $7,500 tax credit. Others will only be allowed half of that. Many others, including whole brands of automakers, will be left out in the cold entirely.
In short, today’s news is great for General Motors, Ford, or Tesla. It’s tough luck for just about every other car company operating in the EV and PHEV space, like Nissan, Rivian, BMW, or Volkswagen.
The new rules, effective April 18, 2023, stipulate that an EV or PHEV (non-plug-in hybrids sadly don’t qualify at all) only gets tax incentives if its final assembly is in North America; its battery is more than 50% made in North America; and at least 40% of the battery’s “critical minerals” come from the U.S. or one of its free-trade partners. There are essentially two credits involved and each is worth $3,750: one for the car itself and one for the battery. You can see a full list at the EPA’s FuelEconomy.gov website.
The major silver lining in this situation is that customers can still qualify for a full $7,500 tax credit if they lease an EV or PHEV, as long as their dealership decides to pass on the savings.
Let’s break this down.
Winner: Tesla
Come at the king, you best not miss. The worldwide leader in EV production fares very well under the new rules. Granted, the Model S and Model X are too expensive to qualify for any tax breaks, but we knew that going in.
Instead, Tesla’s mainstream, volume-selling cars — the Model 3 and Model Y — keep their full $7,500 tax credits. The only one with batteries that don’t meet the new mineral-sourcing requirement is the Model 3 Standard Range Rear-Wheel-Drive; in other words, the base Model 3.
But between the tax incentives, Elon Musk’s tendency to slash prices on a whim, and the company’s still-unmatched ability to deliver EVs at scale, the rules should keep Tesla’s lead over other automakers pretty comfortable for some time.
Tesla still made up 64 percent of the U.S. EV market last year, and nearly half of its registrations were for the Model Y crossover. In other words, as The Washington Post’s Shannon Osaka pointed out today, the new tax credits are more limited but they do incentivize the cars that make up most of the market.
Winner, kinda: General Motors
GM is quick to say that “qualifying customers will have access to the full $7,500 credit across [its] entire EV fleet,” but it’s key to remember that most of the cars on its list are currently not for sale. And others are having a hard time getting there.
For example, the Chevrolet Bolt and Bolt EUV still qualify for the full credits. These two EVs, which have a range of about 250 miles, are both screaming deals — even more so with the full credits. But they’re getting a bit old and do not offer the same fast-charging options that many newer competitors do. It’s not a dealbreaker weakness for the Bolt, but it is arguably the car’s biggest drawback.
The Cadillac Lyriq luxury crossover also qualifies for the full break. But GM has struggled with production for that vehicle. The Lyriq went on sale last year, but GM only made about 8,000 of them in all of 2022, much to the chagrin of reservation-holders and Cadillac’s dealers. To date, they’re seldom seen on roads outside of Detroit. (The GMC Hummer EV is too expensive to qualify for tax credits under the new rules, but it’s also had a lot of production problems to date.)
The rest of the cars on GM’s list — the Chevrolet Equinox EV, Blazer EV and Silverado EV — also aren’t even on sale yet. And given GM’s known troubles ramping up EV output, it’s fair to ask when prospective EV buyers will really be able to take advantage of the new rules here.
Winner, mostly: Ford and Lincoln
Ford’s eligible offerings include the electric Mustang Mach-E, F-150 Lightning, and E-Transit van, as well as the plug-in hybrid Escape. Those cars’ fancier cousins, the Lincoln Aviator and Corsair, also qualify for the hybrid tax credit, which is rated at $3,750.
The survival of the credit is great news for buyers of the F-150 Lightning, which is already America’s best-selling electric truck (and the only one to achieve anything close to real mass production.) Unfortunately, the popular Mustang Mach-E only qualifies for half the credit it used to because its batteries don’t meet the sourcing requirements.
Eventually, Ford will be more than likely able to equip the electric Mustang with compliant batteries. It’s been on the market for a few years now, and so the way it’s designed and built pre-dates these new rules. But it’s still a bit of a bummer for anyone aiming to buy this fast electric crossover.
Winner: Volkswagen
When the EPA’s list was first unveiled, the biggest loser seemed to be Volkswagen. The German automaker has ambitious all-electric plans and mass-adoption hopes for its ID.4 electric crossover, yet none of its cars initially made the cut. At the time a VW spokesperson said the company was “fairly optimistic" that the ID.4 would qualify for the tax credit once VW received documentation from a supplier. That optimism was not misplaced. On Wednesday, the ID.4 was added to the EPA’s list and made eligible for the full $7,500 tax credit.
Losers: BMW, Volvo, Audi
Other European automakers who build PHEVs and EVs in North America now find themselves out in the cold, since their batteries may not meet the mineral-sourcing requirements at all anymore.
The cars losing their tax credits entirely include the Audi Q5 TFSI e hybrid; the BMW 330e, and X5 xDrive45e hybrids; and the Volvo S60 hybrids. Being locally built isn’t enough anymore under the new rules, and that certainly represents a setback for these automakers.
At least for now. BMW is planning a $1.2 billion battery factory in South Carolina.
Loser: Rivian
This ambitious electric truck startup also loses its tax incentive qualifications entirely under the new rules. Rivian’s R1T truck and R1S SUV are both built in America, but its Samsung SDI-sourced batteries are not. Last year, the two companies abandoned plans to build a U.S. battery factory together after being unable to come to terms on the deal.
Loser: Nissan
Nissan got hit especially hard on this one. The U.S.-built Leaf won’t meet the battery requirements for the new rules, and the Japan-built Ariya crossover — the star of a big marketing push featuring actor Brie Larson – also won’t be eligible. That’s a tough blow for a brand that’s trying to regain the early lead it once had in the EV space.
At the same time, Nissan is another company with a huge North American factory presence and it will expand that to meet the new tax credit demands. Nissan has said it hopes to sell six EVs in America by 2026, many of them built in Mississippi.
Losers: Hyundai, Kia, and Genesis
The rules going into effect this week don’t change anything for South Korea’s Hyundai Motor Group. It’s been known for a while that its Korean-built EVs wouldn’t qualify for any tax incentives, and now that’s official. That means critically acclaimed cars like the Hyundai Ioniq 5 and Kia EV6 lose a big advantage over some competitors.
Even Genesis, which now produces an all-electric version of its Genesis GV70 crossover in Alabama, loses out this time. It’s not clear why the Electfied GV70 doesn’t qualify; we will update this story as we learn more.
But the new EV tax credit rules are a big blow for Hyundai, which is undertaking a major EV push to challenge Tesla on the world stage and thought it had worked out a deal with President Biden. Long-term, the answer will be considerably more American EV production, but that will take time. For now, Hyundai is banking on people getting a deal by leasing these EVs instead.
Losers: EV buyers, for now
The long-term goal of the new rules is to have a robust EV battery manufacturing infrastructure right here in North America so that our zero-emission future doesn’t depend so much on China. New factories are springing up left and right in the U.S. as automakers and suppliers alike pour billions into future battery power.
But those won’t go online overnight; very much the opposite. Ford’s own $3.5 billion battery plant won’t be up and running until 2026. In the immediate term, these rules so limit eligibility that they could hinder wider EV and PHEV adoption at a crucial time.
All of it begs the question: What is the bigger goal of the IRA’s car-related rules: To get emissions down and spur EV adoption as quickly as possible, or to ramp up a domestic battery manufacturing ecosystem?
If it’s the former, then these new tax credit rules are a bit of a whiff. They’re so limiting they run the risk of keeping people out of electrified vehicles for cost reasons. The average price of an EV is about $60,000 before any incentives, which is greater than the also-high $45,000 average price for most internal combustion new cars.
Cost could slow down EV acceptance right when the public charging infrastructure is finally getting a much-needed shot in the arm of its own.
To be clear, the EVs are coming. Just about every automaker on this list has announced aggressive expansion plans for locally made EVs, batteries, or both. Most automakers are global entities and have to keep an eye on the long game, which seems to be battery-centric thanks to regulations in Europe and China.
Still, this a very tough, specific set of rules to meet — and it means EV growth might just accelerate a little less quickly than it could have.
This article was updated on April 19 at 1:31pm ET after the Volkswagen ID.4 was included on the EPA’s list.
Chart courtesy of the Business Council on Sustainable Energy
