The Inflation Reduction Act of 2022 (IRA) introduced new guidelines for a federal EV tax credit aimed at helping qualified drivers purchase an electric vehicle. The tax credit is part of a broader plan to make 50% of new vehicles sold in the United States hybrids or plug-ins by 2030. Applicants can receive a non-refundable tax credit of up to $7,500 on the purchase of any of the eligible vehicles listed under the IRA. Drivers looking to take advantage of the federal EV tax credit are subject to a variety of requirements regarding vehicle usage, the suggested retail price (MSRP), and household income, all of which can affect the amount of the tax credit they are eligible to receive.
On April 18, 2023, the Treasury Department added new rules to the tax credit eligibility, imposing additional restrictions on which vehicles qualify in an effort to reduce U.S dependence on China. However, despite some of the negative press surrounding these changes, there’s no need to panic. While there are now stricter requirements for vehicle eligibility, a full 81% of EVs sold so far in 2023, including the majority of the most popular models, still qualify. Not only that, but the new requirements are also set to have a positive impact on North American manufacturing as many automakers start to adjust their supply chains and invest in battery plants, components, critical minerals, and assembly here at home.
What are the New Changes to the Federal Tax Credit?
Specifically, the new changes to the federal EV tax credit involve the sourcing of battery components and critical minerals used in EV batteries.
· Critical minerals. To be eligible for the tax credit for EVs purchased after April 18, 2023, at least 40% of the critical minerals, including lithium, nickel, manganese, graphite, and cobalt, used in the vehicle’s batteries must be extracted, processed, or recycled in the U.S or in a country with which the U.S has a free trade agreement.
· Battery components. To be eligible for the tax credit after April 18, 2023, at least 50% of the components in the vehicle’s battery must be manufactured or assembled in North America.
· New EV tax credit rules breakdown:
o $3,750 if the vehicle meets the critical minerals requirement only.
o $3,750 if the vehicle meets the battery components requirement only.
o $7,500 if the vehicle meets both.
Based on these new rules, several vehicles will no longer qualify for the IRA tax credit, including the Nissan Leaf, BMW X5 xDrive45e, Genesis Electrified GV70, Rivian R1S and R1T, and plug-in hybrid Volvos and Audis.
However, 90% of the vehicles that were eligible for the tax credit before April 18 are still eligible, according to Albert Gore, executive director of the Zero Emission Transportation Association. So, if you were worried that your options have shrunk considerably, rest assured, they haven’t. In fact, now is still the best time to take advantage of the EV tax credit, as the federal government plans on introducing stricter requirements in the coming years, which may affect other currently eligible vehicles on the list.
Electric Vehicles That Are Still Eligible
Before we examine the new updates to the Inflation Reduction Act, let’s first take a look at which EVs still qualify for up to $7,500 in federal tax credits. Vehicles that still qualify for the federal tax credit:
|Make||Model||Year||EV Tax Credit||MSRP Limit||Calculate Incentives|
|Chevrolet||Bolt EUV||2022-2023||$7,500||$55,000||Personalize Incentives|
|Chrysler||Pacifica PHEV||2022-2023||$7,500||$80,000||Personalize Incentives|
|Ford||E-Transit||2022-2023||$80,000||Commercial EV (not listed)|
|Ford||Escape Plug-in Hybrid||2022-2023||$3,750||$80,000||Personalize Incentives|
|Ford||F-150 Lightning||2022-2023||$7500||$80,000||Personalize Incentives|
|Ford||Mustang Mach-E||2022-2023||$3,750||$80,000||Personalize Incentives|
|Jeep||Grand Cherokee PHEV 4xe||2022-2023||$3,750||$80,000||Personalize Incentives|
|Jeep||Wrangler PHEV 4xe||2022-2023||$3,750||$80,000||Personalize Incentives|
|Lincoln||Aviator Grand Touring||2022-2023||$7,500||$80,000||Personalize Incentives|
|Lincoln||Corsair Grand Touring||2022-2023||$3,750||$80,000||Personalize Incentives|
|Tesla||Model 3 Standard Range Rear Wheel Drive||2022-2023||$3,750||$55,000||Personalize Incentives|
|Tesla||Model 3 Performance||2022-2023||$7,500||$55,000||Personalize Incentives|
|Tesla||Model Y All-Wheel Drive||2022-2023||$7,500||$80,000||Personalize Incentives|
|Tesla||Model Y Long Range All-Wheel Drive||2022-2023||$7,500||$80,000||Personalize Incentives|
|Tesla||Model Y Performance||2022-2023||$7,500||$80,000||Personalize Incentives|
Five of the top ten best-selling EVs of 2022 qualify for the federal tax credit, including the Ford F-150 Lightning, Chevy Bolt EV, Ford Mustang Mach-E, Tesla Model 3, and Tesla Model Y (though the standard Model 3 and Ford Mustang Mach-E are only eligible for half of the tax credit).
How North American Manufacturing Will Benefit from the New Changes
The new changes to the IRA tax credit are aimed at reducing the auto industry’s reliance on China, which makes up 70% of the global supply of battery cells. By incentivizing automakers to source their battery components and critical minerals from the U.S or its trading partners, the federal government is shifting supply chains away from China and encouraging domestic investment.
As companies break ground on new factories in the U.S and other eligible countries, we will see many EV models get re-added to the list of eligible vehicles. Along with other incentives and grants built into the recent Bipartisan Infrastructure Law and Inflation Reduction Act of 2022, these actions will solidify America’s commitment to an electric vehicle future, improve energy independence, support job creation throughout battery supply chains, and lower costs for working families.