Fewer models are now eligible for a tax credit for buyers of electric vehicles due to new regulations

New regulations that restrict which nations automakers can acquire battery parts and minerals from could potentially undermine efforts to lower greenhouse gas emissions from automobiles by limiting the selection of models available to American consumers seeking to claim a tax credit on the purchase of an electric vehicle.

In an effort to increase demand and move closer to the Biden administration’s target of having 50% of all new vehicle sales be electric by 2030, the Inflation Reduction Act, which was signed into law in 2022, increased tax credits for the purchase of new and used EVs from $3,750 to $7,500.

Nevertheless, in order to be eligible for the credits, one must meet stricter restrictions every year regarding the composition of their batteries and minerals.

New regulations favour homegrown American resources and manufacturing as of January 1. The regulations primarily target battery components from “of concern” countries, which include North Korea, Iran, and Russia in addition to China.

Even as automakers scramble to develop critical mineral and component operations overseas, China remains the dominant player in key areas of the supply and production of EV batteries. As a result, compared to almost two dozen vehicles that qualified in 2023, just 13 of the more than 50 EVs on sale in the United States are eligible for the credits as of this writing.

The Rivian R1T pickup truck, Chevrolet Bolt small car, and Tesla Model Y SUV are still eligible. However, many Teslas are no longer qualified, and even different trim levels and variations of the same model now qualify differently.

Nor are the General Motors Cadillac Lyriq and Chevrolet Blazer SUV, the Ford Mustang Mach-E, or the Nissan Leaf.

Automakers claim they’re working feverishly to find parts that will allow their vehicles to qualify for tax credits, but it will take time to find those parts, especially since multiple automakers are vying for the same part.

Fewer models are now eligible for a tax credit for buyers of electric vehicles due to new regulations

According to several analysts, the growing public acceptance of electric vehicles is unlikely to be significantly impacted by the smaller selection of EVs eligible for tax credits, especially as automakers compete to qualify their models.

“There is still a sufficient range of automobiles available. Automakers will continue to offer incentives as they work to balance their inventories. According to Elizabeth Krear, vice president of J.D. Power’s EV practice, “there are still automakers that are going to work their supply chains throughout the year to come back into the fold.” “This would only be a temporary setback.”

This year, qualified vehicles can have the credits applied at the time of purchase, provided the dealer covers the cost. This is a good development for EV customers. This indicates that customers can afford the purchase more readily. As of last week, the Treasury Department announced that over 8,700 American dealers had registered to do just that.

Even though automakers are still losing money on EVs, General Motors is also deducting $7,500 off its vehicles that are no longer eligible, and there are other discounts available all over the market.

Furthermore, because they are regarded as “commercial vehicles” and are not bound by the same manufacturing and battery content regulations, leased EVs are unaffected by the new regulations. In other words, even if the car wouldn’t qualify for a buy, customers can still receive the full credit amount when they lease a vehicle. Industry analysts and dealers foresee further surge in EV leasing, after its percentage of EV acquisitions doubled in 2023 to 26%, according to consumer intelligence firm J.D. Power.

Last year, sales of electric vehicles reached a record 1.19 million, a 47% increase; however, as the year came to a finish, EV sales growth slowed. December saw a 34% increase. The market share of gas-electric hybrids increased from 5.6% in 2022 to 7.7% last year, a 54% increase in sales to 1.2 million units.

The Environmental Protection Agency estimates that the transportation sector is responsible for roughly 29% of all emissions in the United States. The United States is depending on customers to switch to greener personal transport options as it works to lower its carbon impact. According to Jessika Trancik, an energy studies professor at the Massachusetts Institute of Technology, EVs reduce pollutants dramatically.

Among early adopters, investments in electrification and charging infrastructure have encouraged the purchase of EVs, according to her.

However, S&P Global Mobility reports that mainstream consumers are more concerned about pricing than they are with the infrastructure for charging. A new gas-powered car in the U.S. cost $48,247 on average in November, which is roughly $4,000 less than an electric vehicle (EV), according to Cox Automotive. That’s still noteworthy, but it’s better than a year ago.

Trancik advised consumers to take into account the overall cost of ownership of an EV, which is often lower than that of a gas-powered counterpart because EVs require less fuel and maintenance.

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