New EV Tax Credit Rules Finalized by U.S. Government

Overview

The U.S. government has recently announced the finalization of rules concerning the $7,500 clean vehicle tax credit. These changes, while technical in nature, have the potential to expand the eligibility of electric vehicles for tax credits.

Key Changes

The U.S. Department of Treasury, the Internal Revenue Service, and the Department of Energy have unveiled the final rules for the clean vehicle tax credit, which can amount to up to $7,500. However, the specific credit amount depends on various complex factors.

New Test for Critical Minerals Credit

One significant change is the introduction of a new test for calculating the $3,750 critical minerals credit. Known as the “traced qualifying value add test,” this method mandates manufacturers to conduct detailed supply chain tracing to determine the actual value-added percentage for battery extraction, processing, and recycling. Manufacturers can continue to use the 50 percent roll-up as a transition rule until 2027.

Updates to Foreign Entity of Concern Restriction

Manufacturers can now exclude certain “impracticable-to-trace battery materials” until 2027, potentially making more vehicles eligible for part of the tax credit by eliminating reporting requirements for hard-to-trace materials.

Impact on EVs

The rule specifically targets China, Russia, Iran, and North Korea, stipulating that electric vehicles containing battery components from these countries will be ineligible for the tax credit starting in 2024. Similarly, EVs with batteries containing critical minerals sourced from these countries will be ineligible starting in 2025.

Conclusion

While the changes may seem complex, they aim to provide clarity and certainty to the rapidly growing EV marketplace. The goal is to encourage more Americans to drive electric or plug-in hybrid vehicles that are affordable and domestically produced.