Why Tesla, GM would benefit from delaying the Electric Vehicle Tax Credit base from the Treasury Department

Big news from the federal government could be a huge boon for some automakers.

The Treasury Department said yesterday that it will delay issuance of proposed guidance regarding the supply of electric vehicle batteries that are part of the new $7,500 Inflation Reduction Act (IRA) tax credit.

IRA rules for the electric vehicle tax credit require that $3,750 of the credit be eligible only if 40% of the value of the battery’s critical metals is “mined or processed” in the United States, or in a country with a US free trade agreement. The Treasury Department delayed guidance on this requirement until March, instead of January 1, 2023.

The other $3,750 part of the credit is contingent on having 50% of the battery components manufactured in North America. The IRA EV tax credit also requires EV assembly in North America, along with pricing ($55,000 for cars and $80,000 for trucks and SUVs) and income requirements to meet in order to receive the credits.

The delay in the critical minerals guidance is a big deal for manufacturers like GM (GM) and Tesla (TSLA), because they will be back in the electric vehicle tax credit system on January 1st. Under the previous rules for the Electric Vehicle Tax Credit, GM and Tesla were phased out of any credits because they had reached the gross sales threshold of 200,000 EVs sold for those credits.

In addition, GM and Tesla will likely receive only half of the tax credit due to the critical metal requirements for the battery. The delay until at least March for most of the first quarter and possibly later means that some of their EV offerings will be eligible for a full $7,500 EV tax credit, assuming the purchaser meets the income requirements.

GM and Tesla vehicles eligible for the full tax credit include:

  • Chevrolet Bolt EV and EUV

  • Cadillac Lyrique

  • Tesla Model 3 (Rear Wheel Drive)

  • Tesla Model Y (Long Range and Performance trims)

Note that Ford, which also qualifies for the tax credit but has not been phased out, also qualifies for the full tax credit as well for certain vehicles. Here are some notable non-GM or Tesla models that qualify for the full credit starting January 1:

  • Ford Mustang Mach-E

  • Ford F-150 Lightning

  • Ford E Transit Van

  • jeep wrangler 4xe

  • Jeep Grand Cherokee 4xe

  • Nissan Leaf

  • Rivian R1T (twin engine)

  • VW ID.4

Members of the media and guests surround the Tesla Model 3 during Tesla’s official launch event in Thailand in Bangkok, Thailand, December 7, 2022. REUTERS/Athit Perawongmetha

Another big factor awaiting further guidance is the clean commercial vehicle exemption, which would allow a full EV tax credit for rental vehicles, regardless of country of assembly. Sen. Joe Manchin (D-WV), who was instrumental in creating the IRA tax credit incentive, says the Treasury Department should limit the use of the commercial tax credit for rental electric vehicles.

Some automakers and foreign governments require your dealership a broad interpretation of 45W that allows rental cars, rental vehicles, and shared transit vehicles (like those used by Uber and Lyft), a huge portion of the U.S. auto market, to be eligible for an all-commercial vehicle credit. $7,500 as a way to bypass stringent sourcing requirements,” Manchin wrote in a letter to the Treasury Department, citing his concerns.

Pras Subramanian is a correspondent at Yahoo Finance. You can follow it Twitter and on Instagram.

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