If it’s true that the best compromise is the one that doesn’t make anyone happy, then the new rules regarding what manufacturers and consumers must do to qualify for the US EV tax credit that was part of the Inflation Reduction Act should greatest compromise in history. Except for Treasury Secretary Janet Yellen, no one is happy with the rules as they are drawn up. No one. To get some or all of the money there are five obstacles the manufacturer and customers must clear first.
Before we go any further, keep in mind that almost everything about the EV tax relief changes on January 1. From that date, the tax credit becomes more of a point-of-sale rebate applied by the dealer to directly lower the price of a vehicle. But that’s then and this is now. The new regulations go into effect April 18, meaning customers have approximately 19 days to get the full credit, no questions asked, provided the car they buy or lease reaches its final assembly point in North America. and retail price is $55,000 or less for sedans and wagons or $80,000 or less for SUVs and light trucks.
The buyer will still need to meet certain maximum income requirements, but the full impact of battery materials and component procurement requirements will not take effect until April 18. On or after that date, the federal EV tax credit will be split into two parts — half if the material criteria are met and the other half if the battery component criteria are met. A certain electric car may be eligible for both, half or no tax credit.
There is a lot of confusion about EV tax credit
John Bozzella, CEO of the Alliance for Automotive Innovation trade group, said Autoblog, “I don’t know. It’s not a question that can be answered today. Automakers will report directly to the IRS which EV models (effective April 18) meet critical mineral and/or battery component requirements.” He says there are currently 91 EV models for sale in the U.S. “The Treasury has done its best to create regulations that comply with statutes and reflect the current market,” Bozzella added.
He also told Bloomberg Hyperdrive (email), “This latest turn will further reduce the number of eligible EVs,” adding that it’s still unclear how many models will be eligible next month. “This period could go down as the highest point for EV tax credit eligibility since the IRA was passed last year.”
The purpose of the federal tax credit is to encourage manufacturers to build electric cars in North America using batteries manufactured with materials and components from approved countries. But what is a recognized country? That changes almost by the hour. The US has just signed an agreement with Japan on battery materials and is about to do the same with the European Union. In the end, China is the only country to be definitively excluded, and that includes Chinese companies.
Do Ford and Tesla know something we don’t?
That’s interesting, since Ford recently signed a deal with CATL to build a battery plant in Michigan that will license that Chinese company’s battery technology. Will that work with the people of the Ministry of Finance? Ford thinks so, and today’s news is that Tesla wants to make the same license agreement with CATL for a new LFP plant near the Gigafactory in Austin, Texas. You’d think that both Ford and Tesla would be pretty sure they’d have their ducks in a row if they continued with such plans.
Plus, Ford just got one cooperation in triplicate to develop nickel resources in Indonesia, one of the world’s largest suppliers of nickel. One of the partners is an Indonesian nickel company, but the other is a Chinese company that processes the nickel for use in batteries. Does that fall within the scope of the new Treasury regulations? Or does Ford plan to use those batteries only in EVs sold outside the US?
Complicating the picture is the position Treasury has taken on leasing. There is a provision in the IRA that waives the requirements for the EV tax credit if the vehicle is part of a commercial transaction. So far, Treasury has taken the position that all leases are commercial transactions because leasing companies are commercial enterprises by nature. As a result, a customer may be able to lease an electric car and take advantage of the full EV tax credit, even though if the same vehicle is purchased in full, the vehicle may not qualify for a portion of the credit.
Joe Manchin is furious
Is that crazy? Of course it is, and Joe Manchin, the senior senator from West Virginia, loves all this shenanigans. This week, Manchin told the press he could sue the Treasury Department if he doesn’t like the rules announced today. “If it goes off the rails” – by which he means if the rules conflict with the intent of the Inflation Reduction Act – “I will do what I can. If that means going to court and I can do it, I would. Manchin said.
Manchin said he is most concerned about how Treasury will classify processing and production when determining his eligibility for $7,500 EV tax credits. Manchin, who has often championed fossil fuel industry interests in Congress, says he is trying to move the electric battery supply chain out of China. According to his political opponents, he does not like the EV industry.
“Manufacturing is meant to bring production back to the United States. It’s not really like everyone can put all the parts somewhere else and build whatever you can for that battery and then send it here for assembly,” Manchin told reporters. “Instead of implementing the law as intended, unelected ideologues, bureaucrats and appointees seem determined to violate and undermine the law to further a partisan agenda that ignores both energy and fiscal security. The administration is trying every step of the way to implement the bill it wanted, not the bill Congress actually passed,” Manchin wrote in an op-ed published by the Wall Street Journal this week.
The takeaway meals
Joe Manchin is not one of our favorite people hereby CleanTechnica, but we have to admit that he does have a point. The Treasury Department has created a third category of battery parts that merges some of the “component” requirements with some of the “material” requirements, particularly with regard to cathodes. It is, as my old Irish grandmother would say, a ‘hot mess’. People with a military background might call it a circular firing squad, although when I was in the military we had a different name for it that was much less polite.
The problem, of course, is that while the Treasury strives to abide by the will of Congress while responding to the interests of South Korea, Japan, Taiwan, Vietnam, Indonesia and the European Union, consumers are hopelessly confused . Confused people often postpone buying decisions, so the result is likely to be there fewer EVs sold instead of more.
There should be more EVs goal of the IRA in the first place, but now it seems the best advice for anyone considering buying a new electric vehicle is to wait until 2024, when Phase II of the IRA kicks off. What a shame to have to say that. If you are unsure whether a particular car qualifies in whole or in part for the federal tax credit, an online visit to the IRS website can bring you some clarity… or not. In any case, we should know more on April 18, and then we will keep you posted.
In the meantime, the chance to claim the full tax credit closes on April 18. Before then, if you’re able to pull the trigger on a new EV purchase, you might want to hit your feet up at your nearest dealer and get the paperwork done expeditiously. The credit is available if you sign a purchase contract before April 18, even if you do not receive the delivery until later.
Consult the dealer for more information, as well as a qualified tax attorney and/or accountant. Good luck. You’ll need it.
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