Beginning April 18, the full tax credit will be divided into two parts. To qualify for the first $3,750, at least 50 percent of a vehicle’s battery components must be produced or assembled in North America. To get the second $3,750, at least 40 percent of critical minerals used in the battery must be extracted or processed in the U.S. or in a country that is a U.S. free-trade agreement partner, or they must have been recycled in North America.
The new rules will go into effect for any purchased EV placed in service on April 18 or later. A Treasury Department spokesperson tells CR that buyers who have ordered a vehicle that isn’t delivered and ready for use before that cutoff date will be subject to the updated rules. For current shoppers, this essentially means buying off the showroom floor, ensuring that an existing and eligible order arrives soon enough, or factoring in the new rules when ordering a car. Leased vehicles may still be eligible for the full $7,500 tax credit even if they do not meet these new guidelines.
The transition period was put in place to allow manufacturers to determine which of their vehicles will meet the new guidelines. “These tax credits are complex, which means more confusion for consumers in the short term,” says Chris Harto, CR’s senior policy analyst for transportation and energy. “However, their strict requirements are already leading to massive private investments in domestic EV manufacturing that will ultimately lead to more jobs and more secure supply chains over the long term.”
In addition to the new regulations, a new EV must still meet other eligibility criteria to qualify for a federal tax credit. It must have an MSRP of under $55,000 for sedans and wagons and $80,000 for SUVs, vans, and trucks (calculated before dealer discounts and negotiation). It must also be assembled in North America. There is also a rule for the consumer: New-car buyers must have an annual adjusted gross income below $150,000 for single tax filers and below $300,000 for married couples filing jointly.
A full list of vehicles that automakers have certified as meeting the new guidelines will be available on the IRS website on April 18. We will provide a list on CR.org, as well. Automakers will be able to continue to certify additional vehicles on an ongoing basis as they adapt their supply chains to meet the requirements, so a vehicle that doesn’t qualify this year may qualify next year. Also, it is possible that certain versions of a model will qualify, while others may not.
Consumer Reports will also continue to update its EV Incentive Finder, which shows state and local incentives in addition to federal tax credit eligibility.
A senior Treasury official said that the agency does not have an estimate of how many vehicles will still qualify for either the full or partial tax credit once the new rules are in place, but expects that the guidance will reduce the number of electric vehicles currently eligible for a tax credit in the short term.
"The number of vehicles that qualify at least for the full credit will absolutely decline in the short term, and very few, if any, will qualify for the full credit," Harto says. "But the number of eligible EVs should increase a lot over the next couple of years, as automakers build new factories in the U.S. and adjust their supply chains to the new rules."
The Treasury says that the new rules are aimed at bringing EV manufacturing and sourcing away from China and to the U.S. and its free-trade partners, which include Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, South Korea, Mexico, Morocco, Nicaragua, Oman, Panama, Peru, and Singapore. They also now include Japan, after it entered into a special minerals-focused trade agreement with the U.S., signed just before the new rules were released, and may expand to include countries in the European Union as well, Reuters reports.
The new rules will become stricter over time, with requirements increasing by 10 percent each year through 2027. By then, 90 percent of battery components and 80 percent of critical minerals will have to meet the guidelines.
Meeting these rules may be a challenge for automakers, Harto says, because individual parts and components are often shipped all over the world for processing and manufacturing before they’re finally installed in a car. And those supply chains can take years to develop.
The Treasury has provided automakers guidelines on how to determine sourcing percentages from individual countries, and it is up to automakers themselves to certify which vehicles qualify, under penalty of perjury.
Starting in 2024, vehicles may not contain any battery components that are manufactured by what Treasury calls a “foreign entity of concern.” The same rule goes into effect for critical minerals in 2025. The department has not yet published a list of which countries are considered foreign entities of concern.
