All You Need to know about the new EV tax credits

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The new “critical mineral” and battery component standards included in the Inflation Reduction Act of last year will be used to determine which electric vehicles are qualified for tax credits, according to new guidelines that were proposed by the Treasury Department on Friday.

In their efforts to dramatically increase the number of electric vehicles on the road, President Joseph Biden and the automotive industry are up against a dilemma. The existing tax credit for the purchase of electric vehicles underwent a significant revision under the Inflation Reduction Act, a significant climate bill passed last summer. The credits are part of the administration’s strategy to combat climate change and are meant to make electric vehicles more affordable and thus more appealing.

We now know how the Treasury Department intends to determine which EVs do and do not qualify for the credits, even though the government hasn’t yet announced which vehicles are eligible for the credits (that will come on April 18).

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The federal tax credit will help US buyers save up to $7,500 on an electric vehicle (EV), but it comes with a long list of criteria, including that the vehicle’s batteries and other parts must be manufactured in the US or in nations with whom it has free trade agreements.

These objectives conflict in the short term. For all, it would be simpler to achieve without any production restrictions if the primary objective were to grow the sales of electric cars.

These conflicts are resurfacing as the White House gets ready to adopt an important IRA regulation that mandates that a specific percentage of battery materials and components come from North America or a U.S. trading partner.

According to CNBC, The Inflation Reduction Act, signed into law by President Joe Biden last August, provides federal tax credits of up to $7,500 for buyers of EVs that meet a new list of requirements:

  • Vehicle price caps. Cars priced above $55,000, and trucks, vans and SUVs priced over $80,000, aren’t eligible for the tax credit.
  • Made in North America. Only EVs that “undergo final assembly” in the U.S., Canada, or Mexico are eligible for the credit.
  • Buyer income limits. If you’re a single individual with modified adjusted gross income of $150,000 or more, or a head of household with more than $225,000 of income, or a married couple filing jointly with income over $300,000, you aren’t eligible for the credit.
  • Critical minerals. To be eligible for the credit in 2023, at least 40% of the critical minerals by value – including lithium, nickel, manganese, graphite and cobalt — in the vehicle’s batteries must have been extracted, processed or recycled in the U.S. or in a country with which the U.S. has a free trade agreement. That percentage will increase to 50% in 2024, 60% in 2025, 70% in 2026, and 80% after 2026.
  • Battery components. To be eligible for the credit in 2023, at least 50% of the value of the components in an EV’s battery must be manufactured or assembled in North America. That percentage will increase to 60% in 2024 and 2025, 70% in 2026, 80% in 2027, and 90% in 2028.