The U.S. government has recently revised its regulations concerning electric vehicle (EV) tax credits, potentially expanding the pool of EVs eligible for credits of up to $7,500. The Treasury Department has finalized regulations under the 2022 Inflation Reduction Act, providing automakers with more leeway regarding the sourcing of battery minerals. This move is aimed at boosting EV demand to meet the Biden administration's target of having half of all new vehicle sales be electric by 2030.
These tax credits, which range from $3,750 to $7,500 for new EVs and $4,000 for used ones, are now accessible at the time of purchase from an authorized dealer, rather than through an income tax refund. However, qualification is contingent upon income levels, vehicle prices, and increasingly stringent criteria concerning battery composition and mineral sourcing.
For eligibility, EVs must be assembled in North America, with some plug-in hybrids potentially qualifying as well. Commencing this year, rules are being phased in to incentivize the development of a domestic EV supply chain, limiting full tax credit eligibility for vehicles containing battery materials from countries considered hostile to the United States.
From 2025 onwards, batteries with any critical minerals from these nations will be ineligible for tax credits. Nevertheless, following feedback from the auto industry, treasury officials have relaxed this restriction, granting exemptions until 2027 for small amounts of certain minerals due to challenges in tracing their origin.
This change is expected to increase the number of eligible EVs in 2025 and 2026. However, challenges persist as the industry transitions to a more robust EV market, with only a small percentage of EV models currently meeting the criteria for the full tax credit.
Despite these efforts, EV sales have experienced modest growth, underscoring the need for ongoing industry transformation. Treasury Secretary Janet Yellen has underscored the benefits of the Inflation Reduction Act's clean vehicle credits, including savings for consumers and job creation, as well as enhancing energy security.