US relaxes some rules for electric vehicle batteries, potentially increasing tax credit eligibility

DETROIT — The U.S. government has slightly relaxed some rules governing tax credits for electric vehicles, potentially making more electric vehicles eligible for credits of up to $7,500.

The Treasury Department announced final credit regulations under the Inflation Reduction Act of 2022 on Friday, giving automakers more time to comply with certain provisions regarding the origin of battery minerals.

Credits range from $3,750 to $7,500 for new electric vehicles. There is also a $4,000 credit for used devices.

They aim to boost demand for electric vehicles in an effort to meet the Biden administration’s goal that half of all new vehicle sales will be electric by 2030. This year, the credits are available at where a vehicle is purchased from an authorized dealer rather than waiting. for an income tax refund.

But eligibility for credits depends on a person’s income, the price of vehicles and requirements related to battery composition and minerals, which become stricter every year. To get the credits, electric vehicles must be assembled in North America. Some plug-in hybrids may also qualify.

Starting this year, complex rules will be gradually introduced to promote the development of a domestic electric vehicle supply chain. The rules would prevent electric vehicle buyers from claiming the full tax credit if they buy cars containing battery materials from China and other countries considered hostile to the United States.

The new rules largely target battery components from countries of “concern” – primarily China, but also Russia, North Korea and Iran.

This year, half of the critical minerals in an electric vehicle’s battery must be mined or processed in the United States, or in a country with which it has a free trade agreement. Sixty percent of battery parts must be manufactured or assembled in North America.

Starting in 2025, batteries containing critical minerals from countries of concern would not be eligible for any tax credits. But after gathering feedback from the auto industry and others, Treasury officials decided to ease the restriction.

Small amounts of graphite and other minerals would be exempt from the restriction until 2027 because their country or origin is almost impossible to trace. Without the exemption, some vehicles meeting almost all the requirements might no longer qualify for the tax credit due to tiny amounts that could not be traced, officials said.

The change will likely make more electric vehicles eligible for credits in 2025 and 2026, but the auto industry says that will be difficult to tell until automakers finish tracing the origins of all minerals.

“The transition to electric vehicles requires nothing less than a complete transformation of America’s industrial base,” John Bozzella, CEO of the Alliance for Automotive Innovation, a major automotive trade group, said in a statement. industry. and it can’t happen overnight.

The rule change, he said, “makes sense for investment, job creation and consumer adoption of electric vehicles.”

Currently, China dominates crucial parts of electric vehicle battery supply and production, even as automakers rush to locate their key mineral and component efforts elsewhere.

Of 114 electric vehicle models currently sold in the United States, only 13 are eligible for the full $7,500 credit, the alliance said.

Despite the tax credits, electric vehicle sales grew just 3.3% to nearly 270,000 between January and March this year, well below the 47% growth that fueled sales record and a market share of 7.6% last year. The slowdown, led by Tesla, confirms automakers’ fears that they moved too quickly to pursue electric vehicle buyers. The share of electric vehicles in total U.S. sales fell to 7.15% in the first quarter, according to Motorintelligence.com.

“The Inflation Reduction Act’s Clean Vehicle Credits save consumers up to $7,500 on a new vehicle and hundreds of dollars a year on gasoline, while creating jobs well paid and strengthening our energy security,” Treasury Secretary Janet Yellin said in a statement.