Ioniq 5

Make
Hyundai
Segment
SUV

The US Treasury Department has confirmed that consumers who lease electric vehicles instead of financing them will also be able to qualify for up to $7,500 in commercial clean vehicle tax credits. The new rule takes effect on January 1, 2023. Why is this a big deal, other than giving consumers greater flexibility? Because it allows for EVs built outside of North America, such as the Hyundai Ioniq 5 and Kia EV6, to become eligible for the tax credits.

This was a major source of controversy in South Korea and elsewhere following the Biden administration's $430 billion Inflation Reduction Act (IRA) passed last August. The law ended that $7,500 tax credit for EVs built outside the continent. Hyundai Motor Group was very upset by this and felt betrayed, especially since it already has a major production plant in Alabama and the recently announced electric vehicle battery manufacturing facility in Georgia that will begin construction shortly.

The European Union, Japan, and other countries also expressed their dissatisfaction with the law. Fortunately, the federal government listened to these grievances and devised a fair solution. Critics of the IRA, such as Toyota, previously claimed that "the lack of criteria to qualify for (commercial credits) could undermine the IRA's goals to expand domestic production of EV batteries and maintain America's energy independence," per Reuters.

The law also ends the 200,000-vehicle per manufacturer cap that affected General Motors and Tesla. Prior to the IRA's passing, both automakers' customers had become ineligible for the tax credit, another major source of contention that's since been resolved.

Another critical component of the new law involves the sourcing of battery mineral restrictions, income and price caps for vehicles that qualify, and the gradual elimination of minerals and other battery components from China. The Treasury Department said just before Christmas it will delay until this March EV battery sourcing guidelines. EVs that don't meet the new requirements will now have a short time of eligibility next year prior to those battery rules taking effect.

As a reminder, half of the tax credit requires at least 40% of the battery minerals' value to have been extracted or processed in the US or a country with a US free-trade agreement or have been recycled in North America. This percentage will rise annually.