Tesla cars may qualify for the full US$7,500 new EV tax credit as Treasury delays its federal subsidy guidelines

Instead of issuing the promised Inflation Reduction Act EV subsidy requirement guidelines that would usher in clarity over which electric cars in the US would qualify for the US$7,500 tax credit starting on January 1, 2023, the Treasury Department outed a press release that it is postponing the guidelines release for March. It would still clarify the battery component and raw material requirements further by year's end, though, as many automakers are signing contracts for US-located battery factories already and their buildout will take time.

Before year’s end, Treasury will also release information on the anticipated direction of the critical mineral and battery component requirements that vehicles must meet to qualify for tax incentives in the Inflation Reduction Act. The information will help manufacturers prepare to be able to identify vehicles eligible for the tax credit when the new requirements go into effect. Treasury will issue a notice of proposed rulemaking (NPRM) in March with proposed guidance on the critical minerals and battery components requirements. By statute, the critical mineral and battery component requirements take effect only after Treasury issues that proposed rule. Additional guidance on clean vehicles for consumers and manufacturers is forthcoming.

This could very well mean that most electric vehicles that are assembled in the US and fulfil the price and owner income requirements, will qualify for the full subsidy amount even though their battery origins could make them ineligible after the final guidelines are announced in March 2023. That includes Tesla and GM whose electric cars will once again be eligible for the federal subsidy.

Tesla started issuing US$3750 credits towards the purchase of an inventory vehicle for delivery this month. That's the subsidy half it thought it would qualify for after January 1, as it didn't want owners to sit on the sidelines and wait for the tax credit to kick in. Now, however, there is a good chance that Tesla cars will be eligible for the full US$7,500 federal tax credit amount come January 1, at least until the Treasury issues its finalized guidelines on how exactly to apply the battery sourcing requirements in the spring.

The Treasury said that the tax credit guidelines delay is necessary so as to be able to take into account the opinion and the impact over all stakeholders involved, foreign and domestic. European Commission officials recently threatened to probe how lawful the new US federal EV subsidies are in the World Trade Organization.

Moreover, many automakers and industry associations need more clarity on which countries qualify as having a free trade agreement with the US, so that they can focus their battery components and raw materials sourcing efforts there in order to fulfill the Inflation Reduction Act's requirements for made-in-US cells that kick in next year.

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