Tesla CEO Elon Musk is on record as supporting the repeal of the EV tax credit, as it would hurt his rivals more than Tesla. But yesterday, Musk decried the fact that the spending bill does not cut subsidies for oil and gas, just EVs and solar.
No fines for you
Yesterday in the Senate, Republicans proposed another new measure that can only be seen as pro-pollution. Should it pass, the EPA would no longer be able to levy fines against carmakers that exceed fleet averages set out in the CAFE regulations. OEMs have paid the government hundreds of millions of dollars in these fines over the past decade. (Note that these fines are different from those imposed on Volkswagen and other automakers for circumventing efficiency standards.)
This would allow OEMs to save money by removing emissions equipment from their products, and it could potentially bring back older powertrains that would otherwise be prohibited on the roads. Tesla may well be the biggest loser here, as the bill removes incentives for other automakers to purchase carbon credits. The GOP is also attacking California’s ability to set its own emissions standards. That would remove another major source of emissions credits for Tesla, which are, again, increasingly important in keeping the company’s books out of the red.
It’s a new year, and while few of us still have the headache of needing to remember to write the new year on checks, 2024 brings a new annoyance of sorts. As of yesterday, tough new US Treasury Department rules concerning the sourcing of electric vehicle batteries went into effect; as a result, most of the battery and plug-in hybrid EVs that were eligible for the Internal Revenue Service’s clean vehicle tax credit until Sunday have now lost that eligibility.
Under the federal government’s previous program to incentivize the adoption of plug-in vehicles, it offered a tax credit, up to $7,500, based on the battery capacity of a BEV or PHEV, and once a car maker sold more than 200,000 plug-in vehicles, it lost eligibility for the tax credit—Only Tesla and General Motors reached this threshold.
As we’ve detailed in the past, the new rules allow for a tax credit of up to $7,500 for the purchase of a new EV. But there are plenty of conditions. Final assembly must take place in North America. There are income caps for the buyer and a price cap for the vehicle—no more than $55,000 for a sedan or $80,000 for an SUV, truck, or minivan. Half of the tax credit is tied to a certain amount of domestically refined or processed minerals in the battery pack, the other half to a certain value of the pack having been assembled domestically.
While that includes countries that have free trade agreements with the United States, it significantly limited the number of new EVs that were eligible for the tax credit. (However, the IRS chose to read the law in such a way as to still allow the full $7,500 tax credit for clean vehicles that were leased, even if not assembled in North America.)
While the first three nations on that list are not particularly far down the road of EV battery making, the same isn’t true for China, which dominates the field, particularly in terms of processing the critical minerals used in lithium-ion batteries. The FEOC rule also applies to batteries made by Chinese-owned companies even if the cells are produced here in the US.
Consequently, the list of BEVs and PHEVs that are still eligible for the new clean vehicle tax credit now looks rather meagre. The following clean vehicles still qualify for the full $7,500, although we should note that the first two on the list (the Chevrolet Bolts) have ceased production now:
2022-2023 Chevrolet Bolt EV
2022-2023 Chevrolet Bolt EUV
2022-2024 Chrysler Pacifica PHEV
2022-2024 Ford F-150 Lightning extended range battery
2022-2024 Ford F-150 Lightning standard range battery
2023-2024 Tesla Model 3 Performance
2023-2024 Tesla Model X Long Rage
2023-2024 Tesla Model Y All-Wheel Drive
2023-2024 Tesla Model Y Performance
2023-2024 Tesla Model Y Rear-Wheel Drive
Additionally, the following vehicles qualify for a $3,750 tax credit:
2022-2024 Ford Escape Plug-In Hybrid
2022-2024 Jeep Grand Cherokee PHEV 4xe
2022-2024 Jeep Wrangler PHEV 4xe
2022-2024 Lincoln Corsair Grand Touring
2023-2024 Rivian R1S Dual Large
2023-2024 Rivian R1S Quad Large
2023-2024 Rivian R1T Dual Large
2023-2024 Rivian R1T Dual Max
2023-2024 Rivian R1T Quad Large
But there is one bright piece of news concerning the clean vehicle tax credit in 2024. From January 1, dealers are now able to pass the entire credit on to the buyer at the point of purchase. This applies to both new and used EVs, even in cases where the buyer may not have a large enough tax liability at the end of the year to claim the full credit the old-fashioned way.
Tesla has engaged in a series of price cuts over the past year or so, but it might soon want to think about making some more for the Model 3 sedan. According to the automaker’s website, the Tesla Model 3 Long Range and Tesla Model 3 Rear Wheel Drive will both lose eligibility for the $7,500 IRS clean vehicle tax credit at the start of 2024. (The Model 3 Performance may retain its eligibility.)
A new hiccup appeared at the start of December 2023, though—in the form of new guidance from the US Treasury Department regarding “foreign entities of concern.”
China is one of those foreign entities of concern (along with Russia, North Korea, and Iran), and the new guidance says that an EV cannot be eligible for tax subsidies if the components were manufactured or assembled in those countries, or if some of the battery minerals were extracted or refined in those countries (beginning in 2025). It also applies to batteries made by companies that are owned or controlled by foreign entities of concern.
Given the high degree of Chinese state involvement in that country’s auto industry, this will probably mean that fewer EVs will qualify for the tax credit next year.
Tesla is not forthcoming on its site about the reason for losing the tax credit for these Model 3 variants, but it’s not the only automaker to face this problem. Ford also believes the Mustang Mach-E will lose its $3,750 tax credit eligibility on January 1, 2024.
