The market for electric vehicles is on the cusp of one of its biggest tests so far.
Federal tax credits for commercial and passenger electric vehicles will take effect Jan. 1, which the bulk of buyers and probably every manufacturer has known for months.
What they may not have seen coming was the White House’s sudden alteration to the provisions just weeks before they were set to be implemented.
The U.S. Treasury Department on Dec. 19 announced that the rule’s critical minerals and battery component requirement, which makes up half of the $7,500 credit for new passenger EVs, won’t take effect until March. That could open the floodgates for EV sales, and here’s why.
The Inflation Reduction Act, enacted by Congress and signed into law by President Joe Biden in August, sets out three different tax credits for EV buyers: $7,500 for new passenger vehicles, $4,000 for used ones and $40,000 for commercial vehicles if the buyer is considered a business owner.
The credits are part of a protracted push from federal and state policymakers looking to make EVs more affordable, and therefore more prevalent. The White House is targeting a deadline of 2030 for half of all new vehicle sales to be electric, with several states adopting similar goals.
The $7,500 credit has two requirements. Half of it ($3,750) hinges on the vehicle being assembled in North America. The other $3,750 becomes available if the vehicle’s battery and mineral components were sourced in the region.
But because the latter requirement won’t take effect until March, companies meeting only the vehicle assembly rule will be able to offer the full $7,500 credit to buyers in January and February. The result could be a sharp uptick in sales of new EVs to start the year.
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Not everyone will be eligible for the credits — single filers must have a modified gross adjusted income of $150,000 or less, head of household filers must earn $225,000 or less, and joint filers must bring in under $300,000.
Not all vehicles will be eligible either. Cars selling for more than $55,000 and trucks, vans and SUVs priced higher than $80,000 are not covered.
But the potential market will be large enough for observers to gauge just how high EV demand is.
Buyers aren’t the only stakeholders who stand to benefit. Certain automakers, like General Motors and Chevrolet, get a boost because they now can offer the full $7,500 credit regardless of where their materials are sourced. Chevy’s Bolt, for example, is assembled in North America but uses materials sourced elsewhere. The same can be said of GM’s EVs.
One firm with less to gain is Tesla, which has several vehicles — like the Model X SUV and the Model S sedan — priced too high to be eligible for the credits. Some Tesla models, though, like the Model 3, stand to benefit from the layered implementation.
The delay of the critical minerals and battery component requirement could also serve as something of a grace period for these automakers, giving them extra time to establish sourcing within North America. But some are wary of the decision’s long-term impacts on the EV industry.
“We will look back at the battery goals as aspirational to encourage potential U.S. suppliers to make big investments,” explained Dr. Richard Kilgore, an instructor in the Online Management and Business Administration program at Maryville University. “But eventually, to achieve the goal of ensuring a competitive U.S. EV industry, we will relax those numbers first. We have North American assembly capacity, but not the battery. Better than a delay will be a lower year-over-year target for complying battery sources.”
A full list of electric vehicles assembled in North America — and thus eligible for the full $7,500 tax credit until March, no matter where their materials come from — can be found on the U.S. Department of Energy’s website.