If you’re considering purchasing a new electric vehicle (EV) and are relying on the $7,500 federal EV tax credit to bring the price down, you may want to act as soon as possible. The rules that determine which vehicles qualify for the loan are changing in a week, and no one seems to know what exactly the new rules will say.
Reuters explains, “The US Treasury Department announced on Wednesday that it will issue guidance next week on procurement requirements for electric vehicle battery tax subsidies.”
Related: How do EV tax credits work?
Laws, regulations and the difference between them
Congress rewrote the electric vehicle tax credit bill, and President Biden signed the bill into law last summer. The law gives Americans a $7,500 tax credit on the purchase of many new electric vehicles.
But the law has many purposes. For one, it aims to boost the domestic economy by excluding EVs built on other continents. On the other hand, it sets income limits so that the richest Americans cannot reduce their tax burden by buying electric vehicles.
Related: EV Tax Credits Help Domestic Automakers; Hurt Hyundai, Kia
When a new law is passed, it is up to the federal regulators to write the regulations that explain how the government will implement it.
Congress makes laws. But it leaves the writing of regulations — specific rules governing how laws are applied — to departments of the federal government’s executive branch. Regulations often take longer to draft, requiring consultation with affected industries and time limits for public comment.
Authorities can even revise regulations without changing the law.
For example, the new Electric Vehicle Tax Credit Act sets different price caps for cars and SUVs. Vehicles priced above the cap don’t get tax credits because Congress didn’t want to use the tax law to help wealthier Americans buy luxury SUVs.
The IRS first passed a set of rules governing what counts as a sport utility vehicle. It eliminated several of the automakers’ vehicles from the market as SUVs. After some setback The IRS changed the rules and allowed these vehicles to qualify for the higher SUV price cap.
Government agencies wrote most of the regulations for the new law, but not all of them.
Now we are waiting for rules on battery content
A section of the law governs where the minerals in electric vehicle batteries come from. The Treasury Department was due to release rules outlining this process in January.
When January came it delayed them until March. With March almost over, the department says they will release the rules next week.
Most of today’s EV batteries use lithium, cobalt and other rare minerals that are mined outside of the United States. The auto industry sources most of these minerals from China, Reuters explains. “The rules aim to wean the United States from dependence on China, which dominates global supply chains of products like EV batteries and solar panels.”
The law directed the Treasury Department to write rules that rank mining requirements.
“A buyer can get up to $3,750 of the $7,500 credit if at least 40 percent of the car’s critical minerals, such as lithium and cobalt, by value, are in North America or a country that joins the United States with a free country.” have been extracted or processed – trade agreements,” explains the energy industry journal E&E News. “If the minerals are recycled, that process would have to take place in North America.”
The law increases this requirement over time, reaching 80% in 2027.
Next week’s rules will likely explain how the government plans to implement this requirement.
Nervous automaker tax credits could almost disappear
The auto industry is nervous.
The Alliance for Automotive Innovation, a major industry trade group, has expressed concern that the requirements may be asking too much too soon.
Last August, the alliance said no current vehicles “would be eligible for full credit if additional procurement requirements come into effect. Zero.” Since then, the industry has been working to transform its supply chains, but the alliance has not issued a public update.
That means we simply don’t know which vehicles, if any, will meet the requirements when they launch next week. We know the industry has struggled to meet them. But without knowing what they are saying, no one is sure if they will meet her in April.
At the moment buyers can find a list of cars that qualify for the tax credits on the IRS website. This list could potentially shrink to zero as early as next week.
We’ll bring you updates as soon as we have them. But if you depend on the credit, you might want to make your purchase this weekend, just to be sure.
