US Treasury Releases New EV Tax Credit Rules

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If it is true that the best compromise is the one that makes nobody happy, the new regulations pertaining to what manufacturers and consumers must do to qualify for the US EV tax credit that was part of the Inflation Reduction Act must be the greatest compromise in history. Other than Treasury Secretary Janet Yellen, nobody is happy with the regulations as written. Nobody. In order to get some or all of the money, there are five hurdles the manufacturer and customers must clear first.

Before we go any further, note that almost everything about the EV tax credit changes next January 1. As of that date, the tax credit will become more of a point-of-sale rebate that will be applied by the dealer to lower the price of a vehicle directly. But that is then and this is now. The new regulations are scheduled to take effect on April 18, which means customers have about 19 days to get the full credit, no questions asked, provided the car they are buying or leasing has its final place of assembly in North America and the sales price is $55,000 or less for sedans and wagons or $80,000 or less for SUVs and light trucks.

The buyer must still meet certain maximum income requirements, but the whole impact of battery materials and component sourcing requirements doesn’t take effect until April 18. On or after that date, the federal EV tax credit will be split into two parts — half if the materials criteria are met and another half if the battery components criteria are met. A particular electric car could be eligible for both, half, or none of the tax credit.

 EV Tax Credit Confusion Abounds

John Bozzella, CEO of the Alliance for Automotive Innovation trade group, told Autoblog, “I don’t know. It’s not a question that can be answered today. Automakers will report directly to the IRS which EV models (effective April 18) meet the critical mineral and/or battery component requirements.” He says there are 91 EV models currently for sale in the US. “Treasury’s done as well as it could to produce rules that meet the statute and reflect the current market,” Bozzella added.

He also told Bloomberg Hyperdrive (email), “This latest turn will further reduce the number of eligible EVs,” and added that it is still unclear how many models will qualify next month. “This period may go down as the high water mark for EV tax credit eligibility since the IRA passed last year.”

The purpose of the federal tax credit is to encourage manufacturers to build electric cars in North America using batteries that are manufactured using materials and components from approved countries. But what is an approved country? That is changing almost by the hour. The US has just concluded an agreement with Japan regarding battery materials and is close to doing the same with the European Union. In the final analysis, the only country that is definitely excluded is China, and that extends to Chinese companies as well.

Do Ford & Tesla Know Something We Don’t?

Which is interesting, since Ford has recently concluded a deal with CATL to build a battery factory in Michigan that will license that Chinese company’s battery technology. Is that going to pass muster with the folks at the Treasury Department? Ford obviously thinks so, and the news out today is that Tesla wants to do the same licensing deal with CATL for a new LFP factory near its Gigafactory in Austin, Texas. You would think both Ford and Tesla are pretty sure they have their ducks in a row if they are going ahead with such plans.

In addition, Ford has just announced a three-way partnership to develop nickel resources in Indonesia, one of the world’s largest suppliers of nickel. One of the partners is an Indonesian nickel company, but the other is a Chinese company that processes the nickel for use in batteries. Is that within the purview of the new Treasury regulations? Or is Ford planning to only use those batteries in EVs sold outside the USA?

Further complicating the picture is the position Treasury has taken on leasing. There is a provision in the IRA that waives may of the requirements for the EV tax credit if the vehicle is part of a commercial transaction. So far, Treasury has taken the position that all leases are commercial transactions because leasing companies are commercial enterprises by their very nature. As a result, a customer may be able to lease an electric car and get the advantage of the full EV tax credit even though if the same vehicle was purchased outright, it might not be eligible for any part of the credit.

Joe Manchin Is Incensed

Is that insane? Of course it is, and Joe Manchin, the senior senator from West Virginia is hopping mad about it all of these shenanigans. This week, Manchin told the press he may sue the Treasury Department if he doesn’t like the rules announced today. “If it goes off the rails” — by which he means if the rules violate the intent of the Inflation Reduction Act — “I will do whatever I can. If that means going to court and I can do it, I’d do it,” said Manchin.

Manchin said he is most concerned about how Treasury will classify processing and manufacturing in determining eligibility for $7,500 EV tax credits. Manchin, who has often pushed fossil fuel industry interests in Congress, says he is trying to move the EV battery supply chain from China. His political opponents say he doesn’t like the EV industry.

“Manufacturing is meant to bring manufacturing back to the United States. It’s not basically allowing everyone to put all the parts and build everything you can for that battery somewhere else and then send it here for assembly,” Manchin told reporters. “Instead of implementing the law as intended, unelected ideologues, bureaucrats, and appointees seem determined to violate and subvert the law to advance a partisan agenda that ignores both energy and fiscal security. The administration is attempting at every turn to implement the bill it wanted, not the bill Congress actually passed,” Manchin wrote in an opinion piece published by the Wall Street Journal this week.

The Takeaway

Joe Manchin is not one of our favorite people here at CleanTechnica, but we have to admit he does have a point. The Treasury Department has created a third category of battery parts that melds some of the “components” requirements with some of the “materials” requirements, particularly with regard to cathodes. It is, as my old Irish grandmother would say, a “hot mess.” Folks with a military background might refer to it as a circular firing squad — although, when I was in the Army, we had another name for it that was much less polite.

The problem, of course, is that while Treasury is straining to abide by the will of Congress while being responsive to the interests of South Korea, Japan, Taiwan, Vietnam, Indonesia, and the European Union, the consumer is hopelessly confused. Confused people often defer buying decisions, so the result is there will probably be fewer EVs sold rather than more.

More EVs was supposed to be the raison d’être of the IRA in the first place, but now it looks like the best advice for anyone thinking of purchasing a new electric vehicle is to wait until 2024 when Phase II of the IRA kicks in. What a shame to have to say that. If you are in doubt about whether a particular car is eligible in whole or in part for the federal tax credit, an online visit to the IRS website may bring you some clarity … or not. In any event, on April 18 we should know more, and we will update you then.

In the meantime, the window of opportunity to claim the full tax credit slams shut on April 18. If you are in a position to pull the trigger on a new EV purchase before then, you may want to beat feet to your nearest dealer and get the paperwork done post haste. The credit will be available if you sign a purchase contract before April 18 even if you don’t take delivery until later.

See dealer for details — as well as a qualified tax attorney and/or accountant. Good luck. You’re gonna need it.

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Steve Hanley

Steve writes about the interface between technology and sustainability from his home in Florida or anywhere else The Force may lead him. He is proud to be "woke" and doesn't really give a damn why the glass broke. He believes passionately in what Socrates said 3000 years ago: "The secret to change is to focus all of your energy not on fighting the old but on building the new." You can follow him on Substack and LinkedIn but not on Fakebook or any social media platforms controlled by narcissistic yahoos.

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