The Electric Vehicle Tax Credit Is About To Get Better, And Also Harder To Find

Photo credit: Matt Burns

The federal electric vehicle tax credit will change in a specific way that will make it much more attractive to buyers. Starting Jan. 1, the rebate — up to $7,500 for qualified new electric vehicles and up to $4,000 for qualified used electric vehicles — will be available when you purchase the car, as opposed to something you have to claim on your tax return .

Even better, more than 7,000 car dealers have already signed up to ensure they can offer this point-of-sale discount – that's almost half of all new car dealers in the country.

But there's a catch: There may not be many cars that qualify for the full $7,500 credit in the new year, as new restrictions come into effect on the components that make up these zero-emission vehicles.

That's a result of the way these loans were redesigned as part of President Biden's Inflation Reduction Act. The process involved a lot of haggling, particularly with U.S. Senator Joe Manchin, over the ultimate purpose of the loans. Should they be a lubricant for sales of zero-emission vehicles that help combat climate change, or a tool to incentivize building the electric vehicle supply chain to North America?

The answer, as so often, fell somewhere in the murky middle. The loan was effectively split in two. Vehicles are eligible for a $3,500 credit if automakers follow certain guidelines for sourcing battery materials, and an additional $3,500 if they follow similar rules for battery components. (In addition, vehicles must be manufactured in North America to even be eligible.) Starting in 2024, these sourcing requirements will become more stringent.

As a result, General Motors announced this week that only its Chevy Bolt will be eligible for the full tax credit starting January 1st. The more expensive Cadillac Lyriq and the all-new Chevy Blazer won't. GM, the country's largest automaker, said it needed to speed up its plans to replace two smaller components so that the Blazer and Lyriq would comply with the new restrictions.

Ford, meanwhile, said only its F-150 Lightning is eligible for the full $7,500 credit. The Lincoln Corsair Grand Touring SUV is eligible for half the credit, but the Mustang Mach-E, Lincoln Aviator Grand Touring Plug-in Hybrid and E-Transit van are not.

Even Tesla, a company particularly good at identifying and qualifying clean energy credits and subsidies, initially said its Long Range and RWD Model 3 variants would lose half of the credit, and then days later informed me that they would actually lose the full credit. Tesla has also signaled that the Model Y may not be approved either.

As the new year approaches, more automakers are likely to announce which of their electric vehicles are — or are not — eligible for the credit, and eventually the Treasury Department will compile a list on its website.

All of these uncertainties highlight the complexity of building an electric vehicle in a world where the supply chain is still largely based in and around China. But it also underlines the somewhat chaotic motivation of the guidelines.