The EV tax credit rules are being delayed until March 2023 — here’s what that means for you

Besides its more obvious stated goal of reducing inflation, the Biden administration’s Inflation Reduction Act (IRA) was designed to force profound changes in the electric vehicle market. The legislation revises EV tax credit rules as it seeks to build up domestic battery manufacturing so that the US doesn’t cede the supply chain to China. 

It’s also profoundly confusing, hinging new EV tax credits not just on where the cars are built but also where batteries are assembled and where battery materials are sourced from. These rules were all supposed to take effect on January 1st, 2023 — that’s next weekend for anyone keeping track. 

Now, however, it’s going to take a little longer for all of the new provisions to be in place. On Monday, the Department of the Treasury announced that decisions around some aspects of the EV tax credits will be delayed until March. By delaying rules around where battery minerals are sourced but allowing other rules to go into effect on January 1st, the Treasury Department has created an interesting situation for several North American-built EVs.

It’s going to take a little longer for all of the new provisions to be in place

For anyone who doesn’t follow the thrilling world of Treasury Department guidance — and truly, you’re missing out if you don’t — what this means is several EVs will now remain eligible for the full EV tax credit of $7,500 for the first few months of 2023 and possibly longer. And this means you could score a good deal on one of these EVs in the next quarter, provided you can find one. 

Under the IRA’s new rules, the full $7,500 EV tax credit that was due to take effect on January 1st is only available to cars assembled in North America. But according to Reuters, it’s also contingent on the batteries meeting two factors that are each good for $3,750.

One half is based on the EV battery having at least 40 percent of its critical minerals sourced in the US or one of its free trade partners; the other half is based on the EV battery having at least 50 percent of its components manufactured or assembled in North America. Those percentages are meant to scale up in the coming years as well. This is because the IRA seeks to make certain that batteries are sourced and built in North America, not just the cars themselves. 

Some new effects of the IRA, such as caps on buyer income and vehicle prices, will still go into effect on January 1st. Those rules are meant to force the EV market in a more affordable direction. 

You could score a good deal on one of these EVs in the next quarter, provided you can find one

But on Monday, the Treasury Department announced a delay in the guidance around the critical minerals rules, even as the other rules go into effect. This means certain vehicles will remain eligible for the full tax incentives for a while, even if they may not stay that way long-term. (Most automakers currently aren’t meeting that requirement and have warned they may not for years.)

The big winners (for now) are North American-built EV sedans and smaller cars that start under $55,000 and SUVs and trucks that start under $80,000.

Yahoo! Finance reports this is a big victory for Tesla and General Motors, specifically. Both had lost their EV tax credits entirely under the old rules because they had reached the 200,000-car sales threshold. Now GM and Tesla are back in the game, but not yet beholden to the difficult battery sourcing requirements. (The new IRA rules have no cap on the number of EVs sold.) 

EV news site Electrek puts this directly: “The Chevy Bolt is about to be a screaming deal — at least until March.” Previously, GM CEO Mary Barra had said the company’s cars should be eligible for the full $7,500 tax credit in two to three years as it worked on the sourcing requirements. This decision keeps tax incentives in place for the Bolt and Bolt EUV, as well as the $62,990 Cadillac Lyriq crossover. 

A big victory for Tesla and General Motors

Ford, Nissan, Rivian, and Volkswagen’s North American-built EVs are also now eligible for the full tax credit come January 1st, regardless of where their batteries are sourced. Others aren’t so lucky here. Hyundai and Kia, for example, are excluded because their EVs are built in South Korea. Tesla’s Model S and Model X are also excluded because they’re too expensive to qualify under the new rules.

We may learn more soon about where this is all headed, but the Treasury Department delay gives the qualifying cars at least a three-month window that buyers might do well to take advantage of. 

“Before year’s end, Treasury will also release information on the anticipated direction of the critical and battery component requirements that vehicles must meet to qualify for tax incentives in the Inflation Reduction Act,” the department said in a statement. “The information will help manufacturers prepare to be able to identify vehicles eligible for the tax credit when the new requirements go into effect… By statute, the critical mineral and battery component requirements take effect only after Treasury issues that proposed rule.”

“By statute, the critical mineral and battery component requirements take effect only after Treasury issues that proposed rule”

Right now, the IRA’s manufacturing rules represent a pretty onerous task for many car companies. Under the current supply chain, most of them have batteries, minerals and components heavily sourced from other countries, China in particular. As CNBC reports, China alone accounts for some 70 percent of the global supply of battery cells. The IRA is designed to level the playing field, wean American battery dependency off China and create US jobs in the EV sector. Many car companies and their supplier partners are now working to beef up US battery plants as a result

Not surprisingly, the new IRA rules have already been derided as disruptive by some automakers. Hyundai Motor Group, for example, is in a particularly tough spot; its brands Hyundai, Kia, and Genesis together make up some of the top EV sellers in the US, but its American factory plans put it years away from meeting the full tax incentive requirement

The minerals requirement has proven to be especially difficult to parse, let alone institute, as Reuters reported last week, which is likely what led to Monday’s announcement. Additionally, sourcing battery minerals inside the US could have a detrimental effect on the areas near Indigenous reservations where many deposits are found. 

The biggest roadblock to the positive developments in the Treasury Department’s news is still that new cars can be exceedingly difficult to find, especially without obscene markups. It hasn’t been a great year to buy new cars, and we can fully expect those headaches in 2023. As of this writing, a quick search of reveals just 578 new Chevrolet Bolts and only 1,018 Bolt EUVs for sale nationwide. But if you can find one, Q1 2023 might be a very favorable time to pull the trigger. 

Will these rules change again? That feels entirely possible; the IRA is a wide-scale shift in how we buy EVs and, eventually, how and where they’ll be built. In the meantime, it’s best to consult a list of which vehicles qualify for the tax breaks, like this one at Consumer Reports, and just keep an eye on the deals out there if you want to go electric. 

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