More Changes Occurring in the EV Industry

Receiving a full tax credit for an EV purchase gets tougher starting April 18.

April 05, 2023

Getting the full $7,500 tax credit when purchasing a new electric vehicle is about to become more challenging, according to The Wall Street Journal.

Late last week, the Treasury Department and Internal Revenue Service published the fine print for new EV tax credits. Unless auto manufacturers find ways to flex the rules, the upshot is likely to be a massive reduction in EV subsidies starting April 18.

Last year, consumers could receive a $7,500 tax credit for buying new EVs as long as the manufacturer hadn’t already sold 200,000 vehicles. Then came the Inflation Reduction Act. From its signing on Aug. 16, cars had to be built in North America to qualify for a tax credit, ruling out Hyundai and Kia and most German luxury cars.

On Jan. 1, the rules changed again, bringing Tesla and GM back into the mix by removing the 200,000 cap. But the change also established new limits on the price of qualifying vehicles. Manufacturers struggled to qualify. Tesla cut its prices and GM lobbied to have its Cadillac Lyriq EV recategorized as a sport-utility vehicle, a label that comes with a higher price threshold. The subsidies also depend on battery capacity, but in practice just about all North American EVs under the price limits get the full $7,500.

Now, everything will change again as more requirements are implemented.

Starting April 18, half of the $7,500 credit will depend on an EV having a mostly North American battery and the other half on the origin of the battery minerals, which must mostly come from free-trade partners. A bigger challenge for manufacturers is that Chinese batteries will automatically disqualify a vehicle starting next year, as will minerals mined or processed in China as of 2025.

These new rules make it hard to anticipate who will gain or lose from the changes. Both Tesla and GM are in position to get the battery-related part of the subsidy, given an early focus on domestic battery production, but possibly not the mineral part. Recent investments in domestic mining and processing of raw materials, such as nickel and lithium, won’t be enough to meet their needs, and removing China from battery supply chains might be a challenge even for 2025.

Meanwhile, a J.D. Power study of EV owners who use Level 2 home-charging stations found that overall satisfaction in the home-charging experience has declined 12 points since last year. A major factor on owner satisfaction is the rapid rise in electricity prices, the study found.

"Whether you're an automaker, dealer or utility company participating in the EV ecosystem, improving the EV owner experience with respect to home charging should be a common goal shared by all," said Brent Gruber, executive director of the EV practice at J.D. Power.