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EV Battery Tax Credit Rules Change in the US
May 3, 2024
The U.S. government has made some tweaks to electric vehicle (EV) tax credits, possibly paving the way for more EVs to qualify for credits of up to $7,500. These tax credits range from $3,750 to $7,500 for new EVs, with a $4,000 credit available for used ones.
New regulations are being phased in to encourage the development of a domestic EV supply chain. These rules restrict full tax credit eligibility for EVs containing battery materials from nations considered hostile to the U.S., such as China, Russia, North Korea, and Iran.
They aim to stimulate demand for EVs to align with the Biden administration’s goal of achieving a 50% share of electric vehicle sales by 2030. This year, buyers can access the credits at the time of purchase from an authorized dealer, instead of waiting for a tax refund.
The Treasury Department finalized regulations for these credits under the 2022 Inflation Reduction Act, extending deadlines for automakers to adhere to certain provisions regarding the origin of battery minerals.
However, eligibility for these credits depends on factors such as income, vehicle price, and requirements regarding battery composition and mineral sourcing, which become more stringent each year. EVs must be assembled in North America to qualify, with some plug-in hybrids also meeting the criteria.
The regulations mandate that half of an EV’s critical minerals must be mined or processed in the U.S. or a country with a free trade agreement, with 60% of battery parts needing to be made or assembled in North America. From 2025 onwards, batteries containing any critical minerals from hostile nations will be ineligible for tax credits.
Following industry feedback, treasury officials have relaxed this restriction, exempting small amounts of certain minerals until 2027 due to tracing difficulties.The move aims to support investment, job creation, and consumer adoption of EVs, amidst concerns over China’s dominance in EV battery supply and production. Despite these tax incentives, EV sales saw modest growth in the first quarter of this year, prompting reflection on the pace of EV market development.
Treasury Secretary Janet Yellen emphasized the importance of clean vehicle credits in reducing consumer costs, promoting job growth, and enhancing energy security.
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