Many electric cars lose out on a major tax credit with new rules

WASHINGTON (AP) Fewer new electric cars will qualify for the full $7,500 federal tax credit. Later this year, and many will get only half of that, under rules proposed by the US Treasury Department on Friday.

The rules required by last year’s Reducing Inflation Actis likely to slow consumer acceptance of electric vehicles and could delay President Joe Biden’s ambitious goal that half of all new passenger cars sold in the United States are electric by 2030.

The new rules go into effect on April 18 and aim to reduce the United States’ reliance on China and other countries for electric vehicle battery supply chains.

Electric cars now cost an average of more than $58,000, according to Kelley Blue Book, a price out of reach for many American households. Tax breaks are designed to lower prices and attract more buyers. But $3,750, half of the full credit, may not be enough to entice them away from less expensive gasoline-powered vehicles.

Biden administration officials acknowledge that there are fewer electric cars It will qualify for tax credits in the short term because of the rules that set standards for where electric vehicle battery parts and metals come from. But they say that over time, more electric vehicles and parts will be made in the United States, creating a local supply chain and more jobs. Officials stress that the appropriations and other measures will end the United States’ dependence on China for parts and metals.

Treasury Secretary Janet Yellen said Friday that the new rules will help consumers save money on electric vehicles “and hundreds of dollars a year on gas, while creating American manufacturing jobs and boosting our energy and national security.”

But Sen. Joe Manchin, the West Virginia Democrat who negotiated terms in the new law requiring batteries to be available in North America, said the Treasury Department guidance “completely ignores the intent of the Inflation Reduction Act.”

Manchin called it “appalling” that the Biden administration “continues to ignore the purpose of the law.”, which is to bring manufacturing back to America and make sure we have reliable and secure supply chains. ″

Referring to the 60-day comment period on the proposal, Manchin said, “My comment is simple: Stop this now. Just follow the law.”

Drivers looking to purchase an electric vehicle should move quickly to get the full $7,500 tax credit. The Internal Revenue Service lists more than thirty electric or plug-in hybrid passenger vehicles made in North America that are now eligible. But some won’t qualify or will only get half once the new Treasury rules take effect in less than three weeks.

The Treasury official will not provide an estimate of the number of electric vehicles that qualify under the new rules. The official said the ministry plans to publish a list on April 18.

Automakers are required to certify that their vehicles meet the requirements for full or partial tax credits.

Only a few of the 91 EV models now on sale in the United States are likely to receive full credit, said John Bozzella, CEO of the Alliance for Automotive Innovation, an industry trade group, though some will qualify for half.

“We now know the playing field for the electric vehicle tax credit for the next year or so. March 2023 was as good as it gets,” Bozella said.

The big problem is the new rules that limit the percentage of battery parts and metals that come from countries that do not have free trade or minerals agreements with the United States.

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

Also, at least 50% of the value of battery parts must be manufactured or assembled in North America this year. This requirement rises to 60% next year and in 2025 and jumps 10% each year until it reaches 100% after 2028.

Some car manufacturers can meet the sourcing requirements for battery parts, but few will be able to comply with the metals provisions, said Sam Abuelsamid, an analyst at Guidehouse Research e-Mobility. Much of the lithium used in electric vehicle batteries now comes from China.

“The mineral requirements will be a real challenge,” said Abul Samed. “It is likely that setting up lithium purification at other sites will take longer.”

However, GM said on Friday that at least three of its electric vehicles will qualify for full credit. The Cadillac Lyriq, which is on sale now, will be eligible starting April 18, while the Chevrolet Blazer and Equinox will qualify when they hit showrooms later in the year. A spokesperson said GM is working to get the full $7,500 for other EVs and intends to keep them as battery content requirements become more stringent. The company said it has worked on a domestic supply chain and is building batteries in the United States

The Inflation Control Act also sets price caps for new electric vehicles: $55,000 for cars and $80,000 for pickups, vans and SUVs. There are also income limits intended to prevent the wealthy from taking out credits. Purchasers cannot receive an adjusted gross annual income higher than $150,000 if single, $300,000 if filing jointly and $225,000 if head of household.

In addition, starting in 2025, battery minerals cannot come from a “relevant foreign entity,” particularly China and Russia. Battery parts cannot be obtained in those countries starting in 2024; Minerals cannot come from those countries in 2025.

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

The new rules set out the principles countries must meet to be eligible. The list includes 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. This week, Japan reached an agreement with the United States on trade in minerals important for electric vehicle batteries.

Although the proposed rules go into effect on April 18, the Biden administration is taking public comment, and the rules could be amended later, including adding countries negotiating trade agreements with the United States.

The government says companies have declared at least $45 billion in US investments since the Inflation Act was passed.

Ron Wyden, chairman of the Senate Finance Committee, R-Oregon, said he has concerns about battery materials provisions. “The executive branch cannot decide free trade agreements unilaterally,” he said during a recent hearing. They need to be consulted and approved by Congress. This includes any agreements on critical minerals.”

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Kreischer reported from Detroit.