US Treasury’s New EV Tax Credit Rules Impact Electric Vehicle Market

Summary

  • The U.S. Treasury is implementing new sourcing rules to reduce the U.S. electric vehicle sector’s dependence on China. This went into effect starting Monday.
  • The list of electric vehicle models qualifying for U.S. EV tax credits decreased from 43 to 19 with some manufacturers yet to submit information about eligible vehicles.
  • Several popular models, including Volkswagen ID.4, Tesla Model 3, BMW X5, and Audi Q5, are no longer eligible for the tax credit.
  • The 2022 Inflation Reduction Act amended the EV tax credit, requiring vehicles to be assembled in North America to qualify for any tax credits, reducing eligible models by nearly 70%.

New EV Tax Credit Guidelines

Last December, the Treasury set out new guidelines for battery sourcing in an effort to shift the U.S. electric vehicle supply chain away from China, which went into effect Monday. The number of electric vehicle models qualifying for U.S. EV tax credits has seen a significant decrease from 43 to 19. These statistics include various versions of a single vehicle. The Treasury has hinted at potential list changes as some manufacturers are still providing information about eligible vehicles.

New Rules for Buyers

The latest regulations permit buyers to get a tax credit up to $7,500 at a cooperating dealership at the time of purchase. The tax credit is provided based on the vehicle price and the buyer’s income eligibility.

Vehicles Losing Tax Credit Eligibility

Several vehicles have lost their tax credit eligibility, including the Volkswagen ID.4, the Tesla Model 3 Rear Wheel Drive, the BMW X5 xDrive50e, the Audi Q5 PHEV 55, the Cadillac Lyriq, and the Ford E-Transit. Volkswagen has stated it’s verifying federal EV tax credit eligibility for vehicles post-January 1, expressing optimism that MY2023 ID.4s and all MY2024 ID.4s will comply with the new regulations. BMW, Nissan, and Tesla have not provided comments yet.

Adjusting Supply Chains

Car manufacturers, according to the Treasury, are amending their supply chains to ensure that buyers remain eligible for the new clean vehicle credit. Partnerships are being formed, and jobs and investment are being returned to the United States. Ford Motor talked about its E-Transit losing the $3,750 tax credit last month, along with the Mach-E and Lincoln Aviator Grand Touring plug-in hybrid, but confirmed the F-150 EV Lighting and Lincoln Corsair Grand Touring remaining with their credits.

Changes By General Motors

General Motors acknowledged a temporary loss of eligibility for all its EVs except the Chevrolet Bolt. However, it anticipates the eligibility of Lyriq and Blazer EV to be regained in early 2024 following a sourcing change.

Impact of 2022 Inflation Reduction Act

The 2022 Inflation Reduction Act has reshaped the EV tax credit, necessitating North American assembly for vehicles to qualify for any tax credits, leading to a reduction of about 70% in the number of qualifying models. Tesla admitted in December that its Model 3 Rear-Wheel Drive and Long Range vehicles would no longer receive federal tax credits starting in 2022. However, the Model 3 Performance retains the $7,500 credit.

These changes in EV tax credits and sourcing requirements might impact the trading dynamics, especially impacting assets related to automobile manufacturers and EV supply chain-linked stocks.

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