You’ve probably been frustrated this week if you were waiting for 2024’s cash rebate program to buy a General Motors (GM) electric vehicle (EV) and then learned that your favorite model isn’t eligible for a federal tax credit after all.
Don’t despair. General Motors announced this week it will provide incentives of $7,500 on its EVs to offset the loss of a US federal tax credit. GM told its dealers it would provide the equivalent EV tax credit purchase amount “for any vehicles that became ineligible due to the new guidelines.”
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The confusion started in December, when the US Treasury Department outlined new battery sourcing requirements. Last year, the rules required automakers to build at least 50% of an EV’s battery in North America. This year, that requirement jumped to 60%. Last year’s rules also required automakers to obtain at least 40% of the minerals used in batteries from the U.S. or certain trade partners. That requirement increased to 50% on January 1.
The goal in this EV tax credit policy shift is to reduce US dependence on China’s supply chain. The Treasury did temporarily exempt some trace critical minerals from the new rules barring materials from China and other countries deemed a “Foreign Entity of Concern” (FEOC). The FEOC rules come into effect in 2024 for completed batteries and 2025 for critical minerals used to produce them.
The Alliance for Automotive Innovation, an automaker advocacy group, said the decision to exempt trace materials for two years “was significant and well-advised” and was necessary to keep at least some vehicles eligible for the tax credit.
As a result, nearly all GM’s EV’s will (albeit temporarily) lose eligibility. The exception right now is the Chevy Bolt and the Chevy Bolt EUV. In Q4 2023 GM sold just under 20,000 EVs, the bulk of which was represented by the Chevy Bolt EV/Bolt EUV. GM halted the manufacture of the Chevy Bolt models near the end of 2023, so anyone who wants to purchase a Bolt with associated point of sale federal tax credit will be searching current dealership inventory.
New rules allow buyers of qualified EVs to claim tax credits of up to $7,500 at participating dealerships at the point of sale. The US Department of the Treasury has assured dealers that they will be reimbursed for the tax credit within 72 hours of purchase.
This year, clean vehicle dealers and sellers must use an online tool to register with the IRS and to submit time-of-sale reports. Licensed dealers can also register to receive advance payments to offset the amount of a tax credit that was applied toward a customer’s purchase price.
A GM spokesperson told the Detroit Free Press that their plan to compensate EV buyers makes sense:
“The Cadillac Lyriq and Chevrolet Blazer EV will temporarily lose eligibility for the clean vehicle credit on Jan. 1, 2024, because of two minor components. While we await final rules, GM has pulled ahead sourcing plans for qualifying components in early 2024 and will advocate for our dealers and customers who purchase vehicles built ahead of the new guidance.”
GM’s new Ultium battery platform did not meet the strict tax credit requirements due to foreign sourced battery components. GM is upset because the Cadillac Lyriq and Chevy Blazer EVs have 2 minor, non-domestic components which make them ineligible. Chevrolet Equinox EV, Chevrolet Silverado EV, GMC Sierra EV, and Cadillac OPTIQ may return to eligibility for the tax credit reportedly sometime in early 2024, “after the sourcing change,” the company said.
The Treasury Department acknowledged that the few materials being exempted each account for less than 2% of the value of battery critical minerals.
Andrew Rogers, former senior official at the US Department of Transportation, told PC Magazine:
“It’s great to see companies like GM reducing the price for some EV models equivalent to the tax credit in order to boost affordability (and) enhance their domestic EV manufacturing capacity. It’s exciting to be discussing the size of an EV tax credit instead of whether [or not] there is one.”
It’s Not Just GM that’s Facing Loss of EV Tax Credit
With the new Treasury dictate, only 19 of the original 43 EV models will qualify for US EV tax credits. Other vehicles losing the tax credit include the Volkswagen ID.4, Nissan Leaf, some Tesla Model 3s, and Ford Mach-E, the US Treasury detailed. A check of the Energy Department’s online tool shows exactly which vehicles are eligible. Volkswagen said on Monday it “is in the process of confirming eligibility for a federal EV tax credit for vehicles” after January.
Ford retained the full $7,500 credit on the F-150 Lightning, so it is the only electric pickup on the market eligible for the full credit. The Rivian R1T is able to obtain a $3,750 half credit since it only meets half the domestic battery sourcing requirements.
“We’ve spent years preparing GM to transition to an all-electric future,” GM chair and CEO Mary Barra stated prior to making several changes to its product development team and creating a new role to oversee its global regions.
Like many legacy automakers, GM has launched EV products that are not yet fully competitive on price, range, or features with all-electric manufacturers like Tesla, BYD, and Li Auto. Those automakers were on track to capture 7% of the 2023 global vehicle market. For GM EVs to be profitable by 2025, the company will spread costs over more vehicles as sales increase, will promote sales of higher purchase price and their profitability, and will cull battery cost savings. Part of GM’s plan for EVs to become profitable in 2025 is to look for consistency in some of the free cash flow generation through cost reduction programs.
Battery cost savings are integral to that cash flow. The company is driving a sizable increase in cell inventory to realize the efficiencies and the scale efficiencies of the GM Lordstown plant.
Consumers bought more than one million electric vehicles in the US in 2023. The average new EV transaction price was $53,469 in July, about $5,000 more than the overall average car price. Of course, EV owners spend 60% less on fuel than if they were to drive an internal combustion engine (ICE) vehicle.