Government's SUV Definition Gives You $7,500 Back On A 7-Seat Tesla Model Y, But Not A 5-Seat

Jan. 03, 2023 9:52 AM ET by Gerhard Horn Government / 6 Comments

A five-seat Tesla Model Y is not an SUV, but a seven-seater is.

We're three days into 2023, which means the Inflation Reduction Act (IRA) is in full swing. While the government missed the deadline to introduce new EV tax credit guidelines, the Internal Revenue Service (IRS) published a new list with all the plug-in hybrid, hybrid, fuel cell, and electric vehicles that qualify for the $7,500 tax credit.

The IRS points out that not all vehicles on the list may qualify for the full credit; as stated initially in the IRA, vehicles must be assembled in the USA or a country with which the US has a free-trade agreement. A cap is also set at $80,000 for vans, sport utility vehicles, pickup trucks, and $55,000 for other vehicles.

Already there are a few anomalies that don't make sense, as is the case with America's best-selling EV, the Tesla Model Y.

According to the government, the five-seat Model Y is not an SUV, so the cap of $55,000 is applicable. If you look at the cash price, neither the Long Range nor Performance model qualifies, with prices set at $65,990 and $69,990, respectively. But if you add $3,000 to turn the Long Range model into a seven-seater, the cap moves up to $80k, and you can claim that sweet $7,500. You can't have the Performance with seven seats, so it doesn't qualify.

This will help Ford with sales of the Mustang Mach-E, but not as much as you might think. It also doesn't qualify as an SUV, which means the $55,000 cost cap is applicable. Only the entry-level Select with the Standard Range battery qualifies.

Another curious case is the Volkswagen ID.4 is now assembled in America. All front-wheel-drive models are capped at $55,000, while all-wheel-drive models are capped at $80,000. This is despite there being no seven-seat option.

2021-2023 Ford Mustang Mach-E Front Angle View

There's a good explanation for the above. According to the government, an SUV is either a three-row vehicle or one with a gross weight of over 6,000 pounds.

But the rules don't seem to apply logically across the board. Audi's Q5 TFSI e Quattro (PHEV) has an applicable MSRP limit of $80,000, though it only has five seats and has a curb weight of several hundred pounds less than the ID.4, although its GVWR remains a mystery.

For a government obsessed with going green, penalizing a manufacturer for building an EV with an advanced, less weighty battery but still effective battery pack seems odd.

Cadillac Lyriq customers can also forget about a tax credit, as the Lyriq is ruled out by its MSRP and status as a non-SUV.

Nissan's Leaf still qualifies, but there is no mention of the new 2023 Ariya due to its Asian assembly. Stellantis' Chrysler Pacifica PHEV, Jeep Wrangler 4xe, and Jeep Grand Cherokee 4xe all qualify for the $80,000 cap. Both the Rivian R1S and R1T are listed, though only base pickup truck models will qualify.

The IRS relies on manufacturers to enter a written agreement with the IRS to become a "qualified manufacturer," after which they must submit a list of eligible models. A complete list is available on the IRS's website, though most manufacturers have yet to submit information.

There remains a lot of confusion surrounding the IRA. As mentioned earlier, the government missed its deadline for EV tax credit guidelines, so many unanswered questions exist. The $7,500 is essentially split in two, with a car receiving $3,750 if it has a battery built in the States and another $3,750 if said battery was made from "critical minerals" sourced in the USA. The percentage figures attached above are still disputed and might change by March when the government intends to introduce its guidelines.

While many manufacturers have been forced to invest billions to build EVs in the US, others are holding out to see whether any loopholes exist.