When is an SUV not an SUV? When the US Treasury Department says it isn’t. The distinction is important because the maximum sale price for an SUV to qualify for the new federal EV tax incentives is $80,000, but only $55,000 if a vehicle is classified as a passenger car or wagon.
We know many of you will find this hard to believe, but the same federal agency can define the same car differently for different purposes. That’s a shocker, huh? But the Treasury Department has the final say when it comes to specifying which car qualifies for the federal EV tax incentives and in this case, it said on January 8 that both the Tesla Model Y and Cadillac Lyriq were passenger cars/wagons, meaning buyers would not be eligible for any tax credit because they both cost too much money. Certain models of the Ford Mustang Mach-E and Volkswagen ID.4 were also excluded from the latest tax incentives.
General Motors was none to pleased with the news. In a press statement reported by Reuters, it said, “We are addressing these concerns with Treasury and hope that forthcoming guidance on vehicle classifications will provide the needed clarity to consumers and dealers, as well as regulators and manufacturers.” It added that Treasury should use criteria and processes similar to the Environmental Protection Agency and Department of Energy. Treasury replied that it was doing exactly that by using fuel economy standards “which are pre-existing — and longstanding — EPA regulations that manufacturers are very familiar with. These standards offer clear criteria for delineating between cars and SUVs.”
Things got even more silly in the case of the Model Y. Treasury said it was an SUV if it had the optional third row seats, which very few customers want. Not to put too fine a point on it, but those seats are hardly suitable for actual adults. In response, Tesla slashed the price of the Model Y by nearly $20,000 so it would qualify for the EV tax credit that went into effect on January 1.
In a clarification dated February 3, Treasury surrendered to the lobbyists for Tesla, GM, Ford, and Volkswagen and issued new guidance. Here’s the relevant part of its press release:
To make it easier for consumers to know which vehicles qualify under the applicable MSRP cap, Treasury is updating the vehicle classification standard to use the consumer-facing EPA Fuel Economy Labeling standard, rather than the EPA CAFE standard. This change will allow crossover vehicles that share similar features to be treated consistently. It will also align vehicle classifications under the clean vehicle credit with the classification displayed on the vehicle label and on the consumer-facing website FuelEconomy.gov.
Customers who have purchased and placed in service vehicles since January 1, 2023, that qualify under the EPA Fuel Economy Labeling classification standard announced today and who satisfy the other clean vehicle tax credit requirements can claim the credit, including customers with vehicles that did not qualify under the prior EPA CAFE standard.
All vehicles that were eligible under the MSRP limitations prior to today’s notice remain eligible under the updated standard. Updated information about the MSRP limit that applies has been posted to IRS.gov. As outlined in December, subsequent guidance on critical minerals and batteries will be issued in March.
Of course, one can argue that Treasury should have used the fuel economy standard rather than the CAFE standard in the first place. I own a Model Y and bought it specifically because it is about 6 inches taller than the cheaper Model 3, which helps my old knees and hips get in an out. It also has a hatch instead of a trunk, which makes it much more useful for hauling knick-knacks and the occasional small piece of furniture. I bought it because it was an SUV and was frankly stunned when Treasury ruled it was just another passenger car. You could have fooled me.
Mr. Musk Goes To Washington
Just a week ago, Elon Musk flew to Washington, DC, where he met with two Biden administration officials and several Republican lawmakers. The purpose of the conversation at the White House was to discuss how the administration and Tesla could work together to advance electric vehicle production and speed electrification of US vehicle networks. It is just possible that Musk may have had a thing of two to say about the SUV classification issues as well.
Musk met John Podesta, a Democratic stalwart who serves as Biden’s senior adviser for clean energy innovation, and Mitch Landrieu, who oversees infrastructure spending, the White House said. Musk and Biden have often been at odds over political and labor issues. “John Podesta and Mitch Landrieu met with Elon Musk to discuss shared goals around electrification and how the Bipartisan Infrastructure Law and Inflation Reduction Act can advance electric vehicle production and charging as well as the broader cause of electrification,” a White House spokesperson told Reuters.
What Abut Those Tesla Price Cuts?
The question on everyone’s lips now is, what will happen to the price cuts Tesla announced a few weeks ago? No one knows. At the time, many warned that demand for Tesla automobiles was softening, but since the price cuts went into effect, the company says demand has surged once again and now far exceeds its annual production capacity.
Stock analysts warned that the price cuts could be fatal to Tesla’s bottom line, but in fact its profit margin is the envy of the auto manufacturing world and that’s after the price cuts. Will Tesla now raise prices again? A good guess is, it will, but maybe not back to where they were before. Boosting demand is never a bad thing, as long as profitability remains strong.
The play for an individual consumer who is contemplating buying a Tesla is to do so today, right this very minute, in order to lock in the lowest prices ever seen on most models in the past two years. It wouldn’t surprise anyone here at CleanTechnica if Tesla posts new prices overnight. “Strike while the iron is hot,” seems like good advice right now. There is very little likelihood that prices will be lowered again any time soon.
Ford also announced lower prices on some Mustang Mach-E models to counter Tesla’s price reduction. Will it now rescind some or all of those reductions? The situation can best be described as fluid right now. Changes could occur at any moment.
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