American brands such as Tesla and General Motors benefit most from rules that determine which electric vehicles are eligible for tax relief from Tuesday. Foreign automakers like Hyundai will be at a significant disadvantage due to restrictions aimed at keeping China out of the supply chain.
Only 10 vehicles are initially eligible for tax credits of $7,500, less than a quarter of battery-powered cars for sale in the United States. But those 10 included many of the most popular models and accounted for two-thirds of EV sales before the new rules came into effect.
Tesla’s Model 3 and Model Y, the best-selling electric vehicles in the United States, are eligible for the full $7,500 credit with one exception, according to a list released Monday by the Treasury Department. The least expensive version of the Model 3 qualifies for only half the credit because the battery is made in China.
GM’s Chevrolet Bolt, one of the cheapest electric vehicles on the market, is also eligible, as are SUVs and pickups that the company plans to start selling this year.
Fewer Ford vehicles qualify for the full $7,500 credit due to regulations requiring a certain percentage of battery components and minerals such as lithium to come from domestic sources or trading partners. Ford’s Mustang Mach-E, the third best-selling electric car in the United States last year, according to Kelley Blue Book, qualifies for only half the credit because its Polish-made battery doesn’t meet domestic sourcing requirements . The F-150 Lightning pick-up remains eligible for the full credit.
Chrysler and Jeep, divisions of Stellantis, don’t yet sell battery-only cars, but several of their hybrid models will qualify for at least some of the credit. Hybrid vehicles are eligible if their batteries have a capacity of at least seven kilowatt hours.
The rules give American automakers at least a temporary advantage over competitors such as Toyota, Volkswagen and Nissan. There were no foreign automakers on the Treasury list, which is expected to grow as companies adjust their supply chains.
The rise of electric vehicles
Automakers eligible for the tax credits now have a head start as sales of electric vehicles take off. “It’s causing a multiplier effect in the market,” Paul Jacobson, GM’s chief financial officer, told reporters in New York this month. The rules, he added, are “very consistent with the strategy we had already adopted.”
The rules stem from the Inflation Reduction Act, which was passed by Democrats last year to combat climate change and encourage domestic production, among other things. The Ministry of Finance was responsible for writing regulations based on the legislation.
The law aims to reduce the auto industry’s dependence on China, which produces most of the world’s batteries and dominates raw material processing. The law also sets sales price limits and excludes individuals earning more than $150,000 a year and couples earning more than $300,000. The rules also exclude vehicles made outside of North America, including in allied countries such as South Korea and Germany.
“We were not happy,” José Muñoz, the CEO of Hyundai and Genesis Motor North America, said in an interview at the New York International Auto Show this month. Hyundai’s Ioniq 6 electric sedan was named World Car of the Year at the show, but is not eligible for tax credit because it is assembled in South Korea.
Seoul-based Hyundai is investing $10 billion to build car and battery plants in Georgia, which will enable the company to meet the requirements of the Inflation Reduction Act — but not for several years.
Automaker and South Korean government officials asked the Biden administration to allow Hyundai and Kia cars to qualify for credits while the plants were under construction, but were told the law does not allow for such an exception, the government said. lord muñoz.
Hyundai’s car plant in Georgia is expected to begin car production in 2025. The battery factory, which Hyundai is building together with SK On, will start production in 2026. said Munoz.
Tesla had already told potential buyers that the least expensive version of the Model 3 sedan would be eligible for only half the credit, or $3,750. This month, Tesla lowered the price of that car by $1,000 to $41,990. After the partial credit is settled, the car will actually cost many buyers just over $38,000, about the same as a top-of-the-range Honda Accord and cheaper than an entry-level BMW 3 Series sedan.
Other versions of the Model 3 and Model Y SUV continue to receive full credit. Tesla sold more electric vehicles in the United States last year than all other automakers combined, according to Kelley Blue Book.
Some motorists have said the rules are too restrictive and undermine efforts to mitigate climate change. Other critics, such as West Virginia Democrat Senator Joe Manchin III, have complained that the Biden administration’s rules are too lenient.
Government officials have argued that the regulations strike a balance between promoting electric vehicles and building a domestic supply chain.
According to the administration count, in addition to the 10 vehicles that qualify for the full credit, seven qualify for half the credit. Vehicles may be eligible for half the credit if, for example, their battery components come from the United States, Canada or Mexico, but the minerals used to make the batteries do not meet procurement requirements.
Ten vehicles that previously qualified, including the Nissan Leaf and the Volkswagen ID.4, will be dropped from the list, at least temporarily.
The ID.4, an SUV made in Chattanooga, Tennessee, did not make the new list because it is still reviewing its supply chain. But Pablo Di Si, the CEO of Volkswagen Group of America, said he expected the model to qualify. According to Kelley Blue Book, Volkswagen was fourth behind Tesla, GM and Ford in sales of electric vehicles in the US in the first three months of the year.
Five electric vehicles that GM sells or plans to sell this year are eligible. In addition to the Bolt, the Cadillac Lyriq and electric versions of the Chevrolet Equinox and Blazer SUVs and the Silverado pickup are eligible for full credit. GM and LG Energy Solution have begun production of battery cells at a plant in Ohio.
The new rules are subject to revision in response to public comments. It’s up to automakers to prove their eligibility, but they’re subject to an audit by the Internal Revenue Service and can be penalized if they provide false information. The IRS publishes a list of eligible vehicles that is updated regularly.
A provision in the commercial vehicle law allows companies to collect the credits for all leased vehicles, even if the cars do not meet procurement and production requirements. Automakers and their dealers can pass the savings on to people who lease cars, and as a result, Hyundai has seen a spike in leases, Mr Muñoz said. The company also offers cars through monthly subscriptions to allow customers to take advantage of tax breaks and try out electric cars.
But that won’t make up for lost sales because most people would rather buy cars than lease or rent them, Mr Muñoz said.
“We can’t compete unless we drastically lower the price,” he said. “It’s financially impossible to make it work.”
