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New Rules Will Make Many Electric Cars Ineligible for Tax Credits (Published 2023)

New Rules Will Make Many Electric Cars Ineligible for Tax Credits (Published 2023)

The Biden administration hopes its guidelines for up to $7,500 in tax credits will encourage automakers to reduce their reliance on China for batteries and raw materials.

The Biden administration on Friday released new rules that will significantly shorten the list of electric vehicles that qualify for federal tax credits. Officials hope the change will push carmakers to move their supply chains out of China and to the United States or its allies.

The rules, issued by the Treasury Department, are a result of the Inflation Reduction Act, which Democrats passed last year to fight climate change by encouraging the use of zero-emission vehicles and green energy. The law also seeks to reduce the industry’s reliance on China, which makes most of the world’s batteries and dominates the processing of critical raw materials.

For purchases of their electric cars to qualify for up to $7,500 in tax credits, automakers must meet strict requirements for where they assemble the cars and batteries and where they get the materials that go into batteries. Only a handful of vehicles are expected to qualify for the full credit when the rules, which are more stringent than previous requirements, go into effect April 18, down from 21 now.

The new rules, which could be revised in response to comments from the public, will require that a certain percentage of the components and minerals in each electric car’s battery come from domestic sources or countries with which the United States has trade agreements.

The full list of qualifying cars will not be published for a couple of weeks, but Tesla has begun informing buyers that the changes would affect its lineup. The company said on its website that the least expensive version of its Model 3 sedan, one of the most popular electric cars, would no longer be eligible for the full credit. The car uses a battery made in China.

General Motors said Friday that three electric vehicles it plans to sell this year — the Cadillac Lyriq and electric versions of the Chevrolet Equinox and Blazer sport utility vehicles — would qualify for the full credit.