Many electric vehicles lose a large tax credit due to the new rules

WASHINGTON (AP) – Fewer new electric vehicles are eligible for the full $7,500 federal tax credit. Later this year, many will get only half that, under rules proposed Friday by the U.S. Treasury Department.

Provisions required under last year’s Inflation ActThat could slow consumer adoption of electric vehicles and delay President Joe Biden’s ambitious goal of having half of all new passenger vehicles sold in the U.S. be electric by 2030.

The new rules take effect on April 18 and aim to reduce the US’s dependence on China and other countries for battery supply chains for electric vehicles.

Electric vehicles now cost an average of more than $58,000, according to Kelly Blue Book, which is out of reach for many American households. Tax incentives are designed to lower prices and attract more buyers. But $3,750, half of the full credit, won’t be enough to lure them away from less expensive gasoline-powered vehicles.

Biden administration officials agree that fewer electric vehicles EV battery components and minerals will be eligible for tax breaks in the short term due to rules that set standards for where they come from. But over time, they say, more EVs and parts will be made in the U.S., creating a domestic supply chain and more jobs. Officials argue that the loans and other measures will end China’s dependence on the United States for parts and minerals.

The new rules will help consumers save money on EVs “and hundreds of dollars a year on gas, creating American manufacturing jobs and strengthening our energy and national security,” Treasury Secretary Janet Yellen said Friday.

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But West Virginia Democrat Sen. Joe Manchin said the guidance issued by the Treasury Department “completely ignores the purpose of the Deinflation Act.”

Manchin called it “outrageous” that the Biden administration “continues to ignore the intent of the law.”It’s about bringing manufacturing back to America and making sure we have reliable and secure supply chains.

Regarding the proposal’s 60-day comment period, Manchin said, “My opinion is simple: stop it now. Just follow the law.”

Drivers looking to buy an EV should move quickly to claim the full $7,500 tax credit. The Internal Revenue Service lists more than three dozen electric or plug-in hybrid passenger vehicles manufactured in North America. But some will not be eligible or will receive only half as soon as the new Treasury Department rules take effect within three weeks.

A Treasury official would not give an estimate of how many EVs would qualify under the new rules. The department plans to release a list on April 18, the official said.

Vehicle manufacturers must certify that their vehicles meet the requirements for full or partial tax exemptions.

John Bozzella, CEO of the industry trade group Alliance for Automotive Innovation, said only a few of the 91 EV models now on sale in the U.S. will receive the full credit, though some will qualify for half.

“We now know the EV tax credit playing field for next year. March 2023 was great,” Bozzella said.

The big issue is new rules that limit the percentage of battery parts and minerals that come from countries that don’t have free trade or mineral agreements with the United States.

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This year, at least 40% of the value of battery minerals must be mined, processed or recycled in the United States or countries with which it has trade agreements. It rises by 10% every year until it reaches 80% after 2026.

Also, at least 50% of the value of battery components must be manufactured or assembled in North America this year. That requirement rises to 60% the following year and in 2025 and will rise by 10% each year until it reaches 100% after 2028.

Some automakers will be able to meet the battery component requirements, but few will be able to comply with the mineral rules, said Kitehouse Research e-mobility analyst Sam Abulsamid. Most of the lithium used in EV batteries now comes from China.

“The need for minerals can be very challenging,” Abulzamid said. “It would take a lot longer to set up lithium refineries elsewhere.”

General Motors said Friday that three of its EVs will qualify for the full credit. The Cadillac Lyric, which is on sale now, will be eligible starting April 18, while the Chevrolet Blazer and Equinox will be eligible when they reach showrooms later in the year. GM is working to get the full $7,500 for other EVs and wants to keep it because the battery content requirements are tougher, a spokeswoman said. The company said it is working on a domestic supply chain and manufacturing batteries in the US

The Inflation Act also imposes price caps on new electric vehicles: $55,000 for cars and $80,000 for pickups, vans and SUVs. There are also income limits aimed at preventing the rich from taking out loans. Buyers cannot have an adjusted gross annual income of more than $150,000 if filing individually, $300,000 if filing jointly, and $225,000 if head of household.

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Additionally, starting in 2025, battery minerals cannot come from a “foreign entity of concern,” mainly China and Russia. Starting in 2024, those countries will not be able to source battery parts; By 2025, there will be no minerals coming from those countries.

The Biden administration said rules governing that requirement are in the works.

The new rules define the criteria countries must meet to qualify. Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, Korea, Mexico, Morocco, Nicaragua, Oman, Panama, Peru, Singapore and Japan are on this list. Japan reached an agreement this week With the US in trade in critical minerals for EV batteries.

Although the proposed rules take effect on April 18, the Biden administration is seeking public comments and may later modify the rules, including to include countries negotiating trade deals with the United States.

The government says companies have announced at least $45 billion in U.S. investments since the deflation law was passed.

Senate Finance Committee Chairman Ron Wyden, D-Oregon, said he has concerns about the battery provisions. “The executive branch cannot unilaterally decide on free trade agreements,” he said during a recent hearing. “They need advice and approval from Congress, and that includes any deals related to critical minerals.


Krisher reported from Detroit.

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