US updates EV tax credit rules effectively disqualifying many cars


The US Treasury has finally announced revised rules for sourcing and producing battery components. The new rules apply to all-electric vehicles sold in the United States, although the government is allowing a two-week grace period for anyone to finalize purchases under the previous rules.

The previous guidelines stated that any electric vehicle made in the United States and priced below a particular threshold qualified for the $7,500 tax credit for the buyer. 

As of April 18, this tax credit is divided into two halves. The first $3,750 will be applied to all vehicles manufactured in the United States, with at least 50% of the battery components manufactured in the United States. The second $3,750 will be awarded to vehicles with batteries that contain at least 40% essential minerals sourced from the United States or a country with which the United States has a free-trade agreement.

The second part requirement will be raised to 80% by 2027, while the 50% requirement for battery components to be manufactured in the United States will be raised to 100% by 2029. Between now until the deadline, both standards will be gradually increased each year. This will result in a changing list of vehicles qualifying each year, but the US government believes it will accelerate the country’s investment in battery production.

The government is also introducing a list of “foreign entities of concern” that will automatically disqualify them from receiving the full EV tax credit. It means that Chinese companies will be unable to circumvent the restrictions simply by establishing a presence in the United States, casting doubt on at least some of the planned investments in battery manufacturing.

The new regulations are already having an impact; Tesla’s entry-level Model 3 no longer qualifies for the full $7,500 tax credit due to its Chinese battery. There are currently 39 vehicles on the EV tax credit list, but this will change in the coming weeks.