Many new electric vehicles lost eligibility for tax credits of up to $7,500 after new battery sourcing rules took effect on Monday. The new requirements impose stricter restrictions on where battery components and critical minerals come from, how much the cars cost, and who can buy them. They’re also set to get stricter again in 2024, potentially disqualifying additional vehicles.
Treasury issued guidelines in December detailing new battery sourcing requirements aimed at weaning the U.S. electric vehicle supply chain away from China, which accounts for about half of the world’s battery production. The new rules require that a percentage of an EV’s battery parts and minerals be made or assembled in the United States. That percentage will increase over time, reaching 100% in 2029.
The rules will affect some EVs, including the Nissan Leaf and Tesla Cybertruck All-Wheel Drive. Some Tesla Model 3s will no longer qualify for the full credit starting next year because of where their batteries were made. Tesla has warned buyers, who can apply for a refund, that their cars might not qualify for the credit. The company has said it will build a factory in the United States to produce its batteries, but that might not be ready for a few years.
GM says its vehicles will still qualify for the credit, but only if they meet specific requirements when the company makes them after 2023. The Cadillac Lyriq and Chevrolet Equinox EVs will be eligible if produced after the sourcing change takes effect. The Chevrolet Blazer EV and Cadillac OPTIQ will be eligible in early 2024 if they’re produced after the sourcing rule gets tougher.
The new rules will also limit prices and buyer incomes to ensure the tax credit goes to people who can afford it, not just the super-rich. It’s capped at $55,000 for cars and $80,000 for vans, pickups and SUVs. Buyers also can’t have an adjusted gross income of more than $150,000 if they’re single or $225,000 if they file jointly.
Analysts say that EV manufacturers that have already built factories in the United States or shifted their supply chains to be more localized will be better positioned to meet the new requirements. That includes Tesla and General Motors, which have invested in their own EV plants and say they’ll continue to shift their supply chains. Companies that have yet to do so, such as Rivian, stand to lose out.
Consumer Reports says it has tested more than 90 EVs and found that only nine meet the latest standards. Most of those models were available last year, and a few are sold now. The only remaining models that will still qualify for the full credit are the Tesla Model 3 sedan and its long-range version, the Model X SUV, and the Chevrolet Bolt. Other than those, most of the 91 EVs on sale today will only be eligible for a $3,750 rebate.