It’s possible that no electric vehicles will qualify for the new tax credit – Ars Technica | Vette Leader

Enlarge / Volkswagen is one of several car manufacturers that already assemble their battery packs for electric vehicles on site. But the value of the materials that go into the package will determine whether it qualifies for the revised clean vehicle tax credit.


The Inflation Reduction Act of 2022 passed the United States Senate on Sunday and is headed to the House of Representatives, where it is expected to pass without a hitch. It contains numerous changes to the tax code, much of which is intended to prevent the worst effects of climate change.

This includes a revision of the existing tax credit for new plug-in electric vehicles. As we detailed last week, the IRA introduces income caps on the tax credit, and it only applies to sedans costing less than $55,000 and other electric vehicles costing less than $80,000. The bill also lowers the 200,000 vehicle per OEM cap on the tax credit, which would benefit both General Motors and Tesla.

At least if their EV batteries are primarily manufactured in North America and at least 40 percent of the materials used are sourced and processed in North America or a country with a free trade agreement. Instead of being based on battery capacity, half of the credit ($3,750) is tied to where the package is manufactured and half to the supply chain. And that will be a problem if you want to buy an electric vehicle in 2023.

Automakers and battery companies begin building factories in North America. In addition to Tesla’s Nevada location, GM and LG Chem build batteries in Ohio, while Ford and Volkswagen use SK cells made in Georgia. More plants are in the works: Ford and SK are building plants in Kentucky and Tennessee, to name a few, with US battery plants also at Stellantis and Volkswagen, among others. So some EVs may qualify for at least half of the full $7,500 credit, depending on how the value of the battery is determined.

“Ultimately, a lot will also depend on the guidance that has to be issued by the IRS. At first glance it looks like almost no cars will qualify, but some might end up getting in,” Sam Abuelsamid, senior research analyst at Guidehouse Insights, told Ars. Without knowing more, it’s impossible to say definitively say which EVs are eligible for at least $3,750, but the list may include the Ford Mustang Mach-E, locally produced Volkswagen ID.4s, GM EVs that use its new Ultium cells, and Teslas that use the cells use from Nevada.

But the other half of the loan is probably easier. Even as these domestic battery factories increase the U.S. share of battery manufacturing, at least 40 percent of the critical chemicals entering these cells must be extracted and processed on-site, a percentage that will increase by 10 percent each year.

Currently, North America is unable to cope with this production – about two-thirds of the world’s lithium, much of the cobalt and almost all of the graphite is processed in China.

Domestic lithium-ion battery recycling will provide a local source of battery materials, and the US contains lithium deposits that have yet to be exploited. Automakers like GM have already tried to source as much locally as possible, but the global race for contracts for future production could limit their choices.

Once President Biden signs the bill into law, it’s up to Secretary of Transportation Pete Buttigieg to issue guidance on how to interpret the new rules. This includes how one’s income is determined in the case of a point-of-sale discount, and the manufacturing value of a battery.

This must be done by the end of 2022 at the latest, and there is no grace period once the guidelines have been issued. But if you have a binding contract to buy a new electric vehicle by the time the law is passed, but it hasn’t been delivered yet, it should still qualify for the old tax credit.

“The manufacturing tax credits and grant funding will help accelerate the ongoing transformation of the domestic industrial base. Unfortunately, the EV tax credit requirements will make most vehicles immediately ineligible for the incentive. It’s a missed opportunity at a crucial moment and a change that will surprise and disappoint customers in the new vehicle market. It will also jeopardize our collective goal of 40-50 percent electric vehicle sales by 2030,” said John Bozzella, president and CEO of the Alliance for Automotive Innovation.

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