Loosened U.S. EV Tax Credit Rules Could Make More Cars Affordable

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Key Takeaways

  • The U.S. has released looser EV tax credit rules.
  • The new approach allows small amounts of battery minerals to come from countries like China.
  • The move should make more EVs accessible to buyers.

The U.S. Treasury Department has released final, looser EV tax credit rules that could put more cars within reach of American drivers.

The updated rules allow small quantities of graphite and other critical battery materials to come from countries “of concern” (such as China and Russia) while still qualifying an EV for a tax credit. The exemption lasts until 2027, but should ensure that a car gets its credit as long as it otherwise qualifies.

Some of those minerals are “impracticable” to trace, the Treasury said. The temporary measure provides time for tracing methods to improve without punishing electric car makers.

The change was partly the result of a pushback from the auto industry. EV sales frequently hinge on tax credit offers and other promotions. Without those discounts, customers often gravitate toward credit-friendly cars or move toward gas-powered alternatives.

The current tax credit system comes from the Inflation Reduction Act (IRA) and is meant to spur U.S. EV production. There’s no critical mineral nation-of-concern restriction in 2024, but at least 50% of the minerals and 60% of battery components must be domestic. In 2025, the mineral requirement climbs to 60%.

The values remain the same. A car gets the full $7,500 credit if its battery components and minerals both qualify. It gets $3,750 if it only meets one of these requirements. Used EVs qualify for up to $4,000. The credits are now available the moment you buy a car from a dealer. Before, you had to wait for a tax refund.

The Treasury’s approach could make a wider range of EVs affordable, and prevent existing qualifiers from leaving the list. That could help sustain demand at a moment when Ford, GM, and other brands are turning more to hybrids while they wait for the EV market to improve.

There’s no guarantee the looser tax credit rules help EV growth. The industry group Alliance for Automotive Innovation applauded the changes, but warned that only 22 out of 114 EVs on the market were eligible for any kind of credit. While that may change as more battery production moves stateside, it could still leave many buyers paying full price.

It’s also unclear whether or not 2027 offers enough time. The technology world is still heavily dependent on China for parts and minerals, and it might not be easy for some brands to move away in three years. This is also assuming improved test methodology is ready by 2027.