Big news from the federal government could be a big boon for certain automakers.
The Treasury Department said yesterday it would delay the release of proposed guidelines regarding EV battery procurement that are part of the Inflation Reduction Act (IRA)’s new $7,500 EV tax credit.
The IRA’s rules regarding the EV tax credit require that $3,750 of the credit qualify only if 40% of the value of the critical minerals in the battery have been “extracted or processed” in the U.S., or a country with a US free trade agreement. Agree. The Treasury has delayed guidance on this requirement to March, instead of January 1, 2023.
The other portion of the $3,750 credit is contingent on 50% of the battery components being built in North America. The IRA EV tax credit also requires EVs to be assembled in North America, along with pricing ($55,000 for cars and $80,000 for trucks, SUVs) and income requirements that must be met to receive the credits.
The delay in critical minerals guidelines is a major concern for manufacturers such as GM (GM) and Tesla (TSLA), as they will be reinstated in the EV tax credit regime on January 1. Under the previous EV tax credit rules, GM and Tesla were phased out of all credits as they reached the total sales threshold of 200,000 EVs sold for those credits.
In addition, GM and Tesla would likely receive only half of the tax credit because of the battery-critical minerals required. The delay to at least March means for most of the first quarter and possibly beyond that some of their EV offerings will be eligible for the full $7,500 EV tax credit, assuming the buyer has met income requirements.
GM and Tesla vehicles eligible for the full tax credit include:
Chevrolet Bolt EV and EUV
Tesla Model 3 (rear wheel drive)
Tesla Model Y (long range and performance trim)
Note that Ford, which also qualifies for the tax credit but has never been phased out, also qualifies for the full tax credit for certain vehicles. Here are some notable non-GM or Tesla models eligible for the full credit starting January 1:
Ford Mustang Mach-E
Ford F-150 Lightning
Ford E-Transit van
Jeep Wrangler 4xe
Jeep Grand Cherokee 4xe
Rivian R1T (dual engine)
Another key factor awaiting further guidance is the commercial clean vehicle exemption, which allows for the full EV tax credit for leased vehicles, regardless of the country of assembly. Sen. Joe Manchin (D-WV), who was instrumental in creating the IRA’s tax credits, says the Treasury Department should limit the use of the commercial EV tax credit for leasing.
“Some automakers and foreign governments are asking your agency for a broad interpretation of 45W that would allow rental cars, lease cars, and rideshare vehicles (such as those used for Uber and Lyft), a huge portion of the U.S. auto market, to qualify for the full credit of $7,500 for commercial vehicles as a way to get around strict procurement requirements,” Manchin wrote in a letter to the Treasury Department, noting his concerns.
Pras Subramanian is a reporter for Yahoo Finance. You can follow him Twitter and further Instagram.
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