The list of EVs eligible for the $7500 Federal Tax Credit goes from 14 vehicles down to just 4.
Starting in January 2024, the landscape of electric vehicle (EV) incentives in the US took a dramatic turn. New guidelines from the Internal Revenue Service (IRS) have stripped many EVs of their eligibility for the much-coveted $7,500 federal tax credit. This shake-up in the EV market primarily stems from a major pivot in battery sourcing requirements aimed at reducing US dependency on foreign battery components, particularly from China.
Among the vehicles losing out on the tax credit include popular models like the Ford Mustang Mach-E, Tesla Cybertruck All-Wheel Drive, and several Tesla Model 3 variants. With these changes, the list of EVs qualifying for tax credits has nosedived from 43 to just 19.
This shift is a direct result of the 2022 Inflation Reduction Act, which tightens the noose around where EV components are sourced. Vehicles now need at least 50% of their battery minerals from North America and 60% of their battery components to be assembled in North America to qualify for the full tax credit.
The impact of these new rules is significant. Ford has acknowledged that it’s “unlikely” that any Mustang Mach-Es will qualify for the federal tax credit starting from 2024. Similarly, Tesla has also warned customers that certain Model 3 trims will only be eligible for half of the tax credit starting next year.
The changes don’t just affect Tesla and Ford. The Volkswagen ID.4, BMW X5 xDrive50e, Audi Q5 PHEV 55, Cadillac Lyriq, and Ford E-Transit are also among the EVs losing their eligibility. The Chevrolet Bolt EV and Bolt EUV from General Motors (GM) remain the only two models from the company still eligible for the tax credit.
Manufacturers are not sitting idly by. GM, for instance, is offering a $7,500 incentive on all its EVs that have lost eligibility until they can make the necessary sourcing changes to regain it. This includes models like the Chevrolet Blazer EV and Cadillac Lyriq. Ford, on the other hand, is juggling prices, hiking the cost of some of its F-150 EVs while cutting prices of certain premium models.
These changes have sent ripples across the EV market, prompting carmakers to adjust their supply chains to meet the new requirements. It’s a strategic move to keep buyers eligible for the new clean vehicle credit and to bring more jobs and investment back to the United States.
Tesla, while losing eligibility on some models, has confirmed that its Model Y variants are all retaining access to the full tax credit. However, there are price caps and income limits for buyers to be eligible for this credit.
The move to reshape the EV supply chain around China is expected to validate the investments made by automakers. However, with these stringent new requirements in place, the EV market is poised for a significant transformation as manufacturers scramble to adapt. The road ahead looks challenging, but it’s a pivotal step towards a more locally sustained EV industry in the US.
