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Your EV options just got a lot smaller — for now, anyway.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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Current conditions: States left flooded from recent severe storms are now facing freezing temperatures • Firefighters are battling blazes in Scotland due to unusually warm and dry weather • Hospitals in India are reporting a 25% rise in heat-related illnesses compared to last year. Yesterday the country’s northern state of Rajasthan reached 115 degrees Fahrenheit, about 13 degrees higher than seasonal norms.
President Trump’s sweeping new tariffs came into effect at 12:01 a.m. on Wednesday, rattling the world’s markets and raising the risk of a global trade war. The levies, which include a 104% tariff on Chinese imports, triggered a mass sell-off in U.S. Treasury bonds, hiking yields as investors worry about a potential recession and flock to alternative safe-haven investments. The price of oil fell for the fifth day in a row to its lowest since 2021, with Brent futures at about $61 per barrel, well below the $65 level that oil producers need in order to turn a profit drilling new wells nationwide. As Heatmap’s Robinson Meyer explained recently, the tariffs are an outright catastrophe for the oil industry because they threaten a global downturn that would hurt oil demand at a time when oil cartel OPEC+ is increasing its output. Trump’s slate of tariffs will impact the cost of just about everything, from gasoline to e-bikes to LNG to cars. China imposed retaliatory tariffs, increasing them from 34% to 84% in response to the U.S. escalation. Meanwhile, the European Union will vote today on whether to impose its own retaliatory fees. European shares plummeted, as did Asian and Australian stocks.
As Heatmap’s Emily Pontecorvo reported today, a new study published in the journal Nature Climate Change finds that the transition to clean energy could create a world that is less exposed to energy price shocks and other energy-related trade risks than the world we have today. “We have such a concentration of fossil resources in a few countries,” Steven Davis, a professor of Earth system science at Stanford and the lead author of the study, told Pontecorvo. Transition minerals, by contrast, are less geographically concentrated, so “you have this ability to hedge a little bit across the system.”
The White House issued several executive orders on Tuesday aimed at boosting U.S. coal production and use, pointing to rising electricity demand from artificial intelligence. The series of orders direct federal agencies to:
Trump also said he plans to invoke the Defense Production Act to spur mining operations, “a move that could put the federal purse behind reviving the fading industry,” Reutersreported. Coal is the dirtiest fossil fuel, and its use has been in decline since 2007. As of last year, wind and solar combined surpassed coal for U.S. electricity generation.
President Trump signed a separate executive order on Tuesday that targets climate laws at the state level and seeks to remove threats to U.S. “energy dominance,” including “illegitimate impediments to the identification, development, siting, production, investment in, or use of domestic energy resources — particularly oil, natural gas, coal, hydropower, geothermal, biofuel, critical mineral, and nuclear energy resources.” The order references “state overreach” and suggests that some state and local governments are overstepping their constitutional authority in regulating energy through interstate trade barriers or fines on energy producers. It calls out New York and Vermont for their climate change superfund laws that require fossil fuel companies to pay for their planet-warming greenhouse gas emissions. And it mentions California’s carbon cap-and-trade system.
The executive order directs the U.S. attorney general to compile a list of all state and local laws “purporting to address ‘climate change,’” along with ESG, environmental justice, carbon taxes, and anything involving “carbon or ‘greenhouse gas’ emissions,” and put a stop to their enforcement. “The federal government cannot unilaterally strip states’ independent constitutional authority,” New York Governor Kathy Hochul and New Mexico Governor Michelle Lujan Grisham said in a statement. “We are a nation of states — and laws — and we will not be deterred. We will keep advancing solutions to the climate crisis that safeguard Americans’ fundamental right to clean air and water, create good-paying jobs, grow the clean energy economy, and make our future healthier and safer.”
Wood Mackenzie issued its annual U.S. wind energy report this week. It finds that 2024 marked the worst year for new onshore wind capacity in the past decade, with just 3.9 gigawatts installed. Through 2029, the firm expects developers to install another 33 gigawatts of onshore capacity, 6.6 gigawatts of offshore capacity, and carry out 5.5 gigawatts of upgrades and refurbishings. The five-year outlook marks “a 40% decrease quarter-on-quarter from a previous total of 75.8 gigawatts.” The report warns of enduring “uncertainty” thanks to the Trump administration’s attacks on the wind industry. “Growth will happen, but it’s going to be slower,” wrote Michelle Lewis at Electrek. “[Trump] has managed to get some projects canceled, and he’ll make things more of a slog over the next few years.”
President Trump has pulled the U.S. out of international talks to decarbonize the shipping industry and vowed to reciprocate against any fees on U.S. ships, Politicoreported. The International Maritime Organization's Maritime Environmental Protection Conference is unfolding this week in London, where negotiators are trying to agree on a policy to curb shipping pollution through carbon taxation. Shipping accounts for about 3% of global greenhouse gas emissions. Trump reportedly sent a letter to the conference saying “the U.S. rejects any and all efforts to impose economic measures against its ships based on GHG emissions or fuel choice. Should such a blatantly unfair measure go forward, our government will consider reciprocal measures so as to offset any fees charged to U.S. ships and compensate the American people for any other economic harm from any adopted GHG emissions measures.”
“What’s next, a mandate that Americans must commute by horse and buggy?”
–Kit Kennedy, a managing director at the Natural Resources Defense Council, in response to Trump’s executive orders aimed at revitalizing the U.S. coal industry.
Rob and Jesse get into the nitty gritty on China’s energy policy with Joanna Lewis and John Paul Helveston.
China’s industrial policy for clean energy has turned the country into a powerhouse of solar, wind, battery, and electric vehicle manufacturing.
But long before the country’s factories moved global markets — and invited Trump’s self-destructive tariffs — the country implemented energy and technology policy to level up its domestic industry. How did those policies work? Which tools worked best? And if the United States needs to rebuild in the wake of Trump’s tariffs, what should this country learn?
On this week’s episode of Shift Key, Rob and Jesse talk with two scholars who have been studying Chinese industrial policy since the Great Recession. Joanna Lewis is the Provost’s Distinguished Associate Professor of Energy and Environment and Director of the Science, Technology and International Affairs Program at Georgetown University's School of Foreign Service. She’s also the author of Green Innovation in China. John Paul Helveston is an assistant professor in engineering management and systems engineering at George Washington University. He studies consumer preferences and market demand for new technologies, as well as China’s longstanding gasoline car and EV industrial policy. Shift Key is hosted by Robinson Meyer, the founding executive editor of Heatmap, and Jesse Jenkins, a professor of energy systems engineering at Princeton University.
Subscribe to “Shift Key” and find this episode on Apple Podcasts, Spotify, Amazon, or wherever you get your podcasts.
You can also add the show’s RSS feed to your podcast app to follow us directly.
Here is an excerpt from our conversation:
Robinson Meyer: One kind of classical hard problem about industrial policy is selecting the technology that is going to eventually be a winner. And there’s a few ways to get around this problem. One is to just make lots of bets.
One thing that’s been a little unclear to me about the set of technology bets that China has made is that it has seemed to pick a set of technologies that are now extremely competitive globally, and it did seem to pick up on those technologies before Western governments or firms really got to them. Is that entirely because China just made a bunch of technology bets and it happened that these are the ones that worked out? Is it because China could look ahead to the environmental needs of the world and the clean development needs of the world and say, well, there’s probably going to be a need for solar? There’s probably going to be a need for wind? There’s probably going to be a need for EVs? Or is it a third thing, which is that China’s domestic needs, its domestic energy security needs, just happen to align really well with the direction of development that the world is kind of interested in moving in anyway.
John Paul Helveston: All of the above. I don’t know — like, that’s the answer here. I’ll add one thing that’s a little bit nuanced: There’s been tremendous waste. I’ll just put that out there. There’s been all kinds of investments that did not pan out at all, like semiconductors for a long, long time. Just things that didn’t work.
I think where China has had a lot of success is in areas where … It’s like the inverse of what the United States innovation ecosystem does well. China’s ecosystem is really driven around production, and a lot of that is part of the way the government’s set up, that local provinces have a ton of power over how money gets spent, and often repurpose funds for export-oriented production. So that’s been a piece of the engine of China’s economic miracle, is mass producing everything.
But there’s a lot of knowledge that goes along with that. When you look at things like solar, that technology goes back many, many decades for, you know, satellites. But making it a mass produced product for energy applications requires production innovations. You need to get costs down. You need to figure out how to make the machine that makes the machine. And that is something that the Chinese ecosystem does very well.
So that’s one throughline across all of these things, is that the technology got to a certain level of maturity where production improvements and cost decreases were the bigger things that made them globally competitive. I don’t think anyone would be considering an EV if we were still looking at $1,000 a kilowatt hour — and we were there just 15 years ago. And so that’s the big thing. It’s just production. I don’t know if they’ve been exceptionally good at just picking winners, but they’re good at picking things that can be mass produced.
Music for Shift Key is by Adam Kromelow.
That’s according to new research published today analyzing flows of minerals and metals vs. fossil fuels.
Among fossil fuel companies and clean energy developers, almost no one has been spared from the effects of Trump’s sweeping tariffs. But the good news is that in general, the transition to clean energy could create a world that is less exposed to energy price shocks and other energy-related trade risks than the world we have today.
That’s according to a timely study published in Nature Climate Change on Wednesday. The authors compared countries’ trade risks under a fossil fuel-based energy economy to a net-zero emissions economy, focusing on the electricity and transportation sectors. The question was whether relying on oil, gas, and coal for energy left countries more or less exposed than relying on the minerals and metals that go into clean energy technologies, including lithium, cobalt, nickel, and uranium.
First the researchers identified which countries have known reserves of which resources as well as those countries’ established trading partners. Then they evaluated more than a thousand pathways for how the world could achieve net-zero emissions, each with different amounts or configurations of wind, solar, batteries, nuclear, and electric vehicles, and measured how exposed to trade risks each country would be under each scenario.
Ultimately, they found that most countries’ overall trade risks decreased under net-zero emissions scenarios relative to today. “We have such a concentration of fossil resources in a few countries,” Steven Davis, a professor of Earth system science at Stanford and the lead author of the study, told me. Transition minerals, by contrast, are less geographically concentrated, so “you have this ability to hedge a little bit across the system.”
The authors’ metric for trade risk is a combination of how dependent a given country is on imports and how many trading partners it has for a given resource, i.e. how diverse its sourcing is. “If you have a large domestic supply of a resource, or you have a large trade network, and you can get that resource from lots of different trading partners, you're in a relatively better spot,” Davis said.
Of course, this is a weird time to conclude that clean energy is better equipped to withstand trade shocks. As my colleagues at Heatmap have reported, Trump’s tariffs are hurting the economics of batteries, renewables, and minerals production, whether domestic or not. The paper considers risks from “random and isolated trade shocks,” Davis told me, like losing access to Bolivian lithium due to military conflict or a natural disaster. Trump’s tariffs, by contrast, are impacting everything, everywhere, all at once.
Davis embarked on the study almost two years ago after working as a lead author of the mitigation section of the Fifth National Climate Assessment, a report delivered to Congress every four years. A lot of the chapter focused on the economics of switching to solar and wind and trying to electrify as many end uses of energy as possible, but it also touched on considerations such as environmental justice, water, land, and trade. “There's this concern of having access to some of these more exotic materials, and whether that could be a vulnerability,” he told me. “So we said, okay, but we also know we're going to be trading a lot less fossil fuels, and that is probably going to be a huge benefit. So let's try to figure out what the net effect is.”
The study found that some more affluent countries, including the United States, could see their energy security decline in net-zero scenarios unless their trade networks expand. The U.S. owns 23% of the fossil reserves used for electricity generation, but only 4% of the critical materials needed for solar panels and wind turbines.
One conclusion for Davis was that the U.S. should be much more strategic about its trade partnerships with countries in South America and Sub-Saharan Africa. Companies are already starting to invest in developing mineral resources in those regions, but policymakers should make a concerted effort to develop those trade relationships, as well. The study also discusses how governments can reduce trade risks by investing in recycling infrastructure and in research to reduce the material intensity of clean energy technologies.
Davis also acknowledged that focusing on the raw materials alone oversimplifies the security question. It also matters where the minerals are processed, and today, a lot of that processing happens in China, even for minerals that don’t originate there. That means it will also be important to build up processing capacity elsewhere.
One caveat to the paper is that comparing the trade risks of fossil fuels and clean energy is sort of apples and oranges. A fossil fuel-based energy system requires the raw resource — fuel — to operate. But a clean energy system mostly requires the raw materials in the manufacturing and construction phase. Once you have solar panels and wind turbines, you don’t need continuous commodity inputs to get energy out of them. Ultimately, Davis said, the study’s conclusions about the comparative trade risks are probably conservative.
“Interrupting the flow of some of these transition materials could slow our progress in getting to the net zero future, but it would have much less of an impact on the actual cost of energy to Americans,” he said. “If we can successfully get a lot of these things built, then I think that's going to be a very secure situation.”