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It’s been a confusing few months for potential electric vehicle customers after the introduction of complex new rules for the clean car tax credit earlier this year.
On Thursday, the Internal Revenue Service released draft new guidance on the $7,500 clean vehicle tax credit, saying it will begin enforcing domestic sourcing requirements for battery minerals and components beginning April 18. As a result, many new EVs may not qualify for the tax credit.
tell me the rules again
As detailed earlier, the revised clean vehicle tax credit has quite a few conditions that the vehicle must meet in order to be eligible.
The battery pack capacity must be at least 7 kWh. Gross vehicle weight cannot exceed 14,000 lbs (6,350 kg). Plug-in hybrid and battery EVs must be manufactured by qualified manufacturers, but that requirement does not apply to hydrogen fuel cell EVs. Final assembly of the vehicle must be done in North America. There are also income and price caps of $55,000 for sedans and $80,000 for trucks, vans and SUVs.
But these requirements aren’t the end of the story. Necessary but not sufficient to qualify. The $3,750 credit requires a percentage of the value of the battery pack components to be manufactured or assembled in North America. This year he is at 50%, increasing by 10% each year until 2029. By 2029, all value of new EV battery components must be manufactured or assembled in North America.
The IRS has considered how the new rule will apply when it takes effect in early 2023 and has declined to enforce this condition. Inflation Reduction Act of 2022. Yesterday, Senator Manchin vowed to sue the federal government if he could get them to start enforcing these rules. So it’s easy to imagine that he’s happy that the domestic content and value rules will come into force from April 18th. The IRS has produced guidance.
There is currently a four-step process for determining the value of a battery’s components. First, identify all components manufactured or assembled in North America. Next, determine incremental values for all battery pack components, including those manufactured or assembled in North America. Next, determine the total incremental value of the battery components, and finally divide the total value of all components sourced in North America by the total value of all components to get a percentage.
Over time, it should become easier for automakers to meet this requirement. Over the past few months, new battery plants have been announced in Michigan, Kentucky, Tennessee, Ohio, South Carolina and Indiana, with more work underway.
Where did you get that lithium from?
To be eligible for the other half of the $7,500 tax credit, some of the critical minerals used in battery packs must be extracted, processed, or recycled in the United States, or be freely traded by the United States. must be extracted or processed in the country of origin. agreement. Again, the IRS initially declined to enforce this requirement before producing guidance in January. It will change on April 18th.
Similar to the battery value rule, the percentage of domestically produced minerals must increase year by year in order for a vehicle to be covered. By 2023, he 50% of critical minerals must meet this requirement, and he will increase by 10% each year until 2029, when all critical minerals must meet national regulations.
