The Feds Announce More Stringent EV Tax Credit Rules

The US Treasury Department has released its long-awaited battery production and mineral sourcing set of requirements, a part of the Inflation Reduction Act (IRA), set to take effect in April, that determines which new electric vehicles qualify for the $7,500 federal tax credit. Originally scheduled to be published late last year, the guidelines might cause some confusion among consumers so we've pulled out its main requirements.

Beginning on April 18, 2023, the $7,500 credit will be split into two parts: the first half involves meeting requirements for battery components produced in North America. The second half is for critical minerals that come from the US and/or its free-trade partners, such as Mexico and Canada.

The credit will require 40% of the value of a battery's critical minerals to be extracted or processed in the US or a free-trade agreement country, or from materials that have been recycled in North America.

By 2027 - the final year of annual increases - it will increase to 80%. It further requires 50% of the value of battery components to be produced or assembled in North America. By 2029 it will require 100%. Like the minerals requirement, the latter will also see annual increases. Now, here's where consumers need to pay special close attention.

Starting next year, EVs whose batteries consist of any components that are manufactured by a "foreign entity of concern," such as China, will be ineligible for the full credit. This requirement will take effect in 2025 for battery minerals. A separate list of a "foreign entity of concern" will be released at a later date.

Another source of confusion is which vehicles will now fully qualify. As of March 29, a total of 39 vehicles, including the Chevrolet Bolt EV and Bolt EUV, Tesla Model 3, and Genesis Electrified GV70, are included in the IRS list of eligible vehicles. This list was last expanded in early February.