U.S. Treasury Imposes Battery Sourcing Restrictions Impacting EV Tax Credits

Summary

  • The U.S Treasury outlined new rules this month, aiming to shift the U.S electric vehicle supply chain from China.
  • Starting from January 1, new battery sourcing limitations will be implemented.
  • Tax credit for Tesla’s Model 3 Rear-Wheel Drive and Model 3 Long Range vehicles will cease after Dec. 31, 2023 following IRA’s recent advice.
  • The credit for the Model 3 RWD will, however, be reduced by 50% to $3,750 as per Treasury’s newly announced guidelines.
  • Companies like Ford and GM are looking forward to qualifying for full tax credits from next year for their EVs.

U.S Treasury’s New Guidelines

The U.S. Treasury introduced rules at the beginning of this month, announcing new battery sourcing limitations, expected to go into effect on Jan. 1. The main purpose is to move the U.S. electric vehicle supply chain away from China.

Tesla announced on its website, “As per the new IRA directives, the tax credit will terminate for Model 3 Rear-Wheel Drive and Model 3 Long Range on Dec. 31, 2023. For full tax credit benefits, delivery must be taken by Dec. 31.”

Impacts on Tesla

The Treasury stated in April that the new rules will cut the EV maker, Tesla’s Model 3 RWD credits by half. The credits will now stand at $3,750. Nonetheless, tax benefits for other Tesla models will remain untouched.

Tesla also revealed in July that the $7,500 federal tax credits for its Model 3 electric vehicles are likely to be reduced from Dec. 31 onward, without providing the causes behind this decision.

U.S EV Credit Conditions

The U.S. EV credit currently mandates 50% of the battery components’ value to be manufactured or assembled in North America, to qualify for a $3,750 credit. Further, 40% of the value of critical minerals should be sourced from the United States or from a country it shares a free trade agreement with.

Other Automakers

The new rules also affect other manufacturers. Giants like Ford and GM are optimistic about qualifying for full tax credits for their EVs from next year. Volkswagen, on the other hand, is exercising reserved optimism.

The impending changes in the EV industry could potentially influence trading and forex, particularly concerning the shares of Tesla, Ford, and GM, which are expected to feel the effect of the new regulations.

PIP Penguin
Logo