The EV tax credit is about to get better, and also harder to find

The federal tax credit for electric vehicles is about to change in one particular way that will make it far more attractive to buyers. Starting January 1, the rebate — up to $7,500 for qualifying new EVs and up to $4,000 for qualifying used EVs — will be available when you buy the car, as opposed to something you have to claim when filing your taxes.

Even better, more than 7,000 car dealers have already signed up to make sure they are able to offer that point-of-sale rebate — accounting for nearly half of all new car dealerships in the country. 

But there’s a catch: There may not be many cars that qualify for the full $7,500 credit come the new year, thanks to new restrictions going into effect regarding the components that make up these zero-emission vehicles.

That’s a result of the way these credits were reimagined as part of President Biden’s Inflation Reduction Act. The process involved a lot of haggling, especially with U.S. Senator Joe Manchin, over the ultimate purpose of the credits. Should they be a lubricant for sales of zero-emission vehicles that help combat climate change, or a tool to incentivize building up the electric vehicle supply chain to North America? 

The answer wound up somewhere in the murky middle, as it often does. The credit was effectively split in two. Vehicles qualify for a $3,500 credit if the automakers follow certain guidelines on where they source battery materials, and another $3,500 provided they stick to similar rules for battery components. (Above that, vehicles have to be manufactured in North America to qualify for anything.) Starting in 2024, those sourcing requirements become more stringent. 

As a result, General Motors said this week only its Chevy Bolt will qualify for the full tax credit starting January 1. The more expensive Cadillac Lyriq and the brand new Chevy Blazer will not. GM, the country’s largest automaker, said it has to speed up plans to replace two minor components in order to get the Blazer and the Lyriq to comply with the new restrictions. 

Ford, meanwhile, said only its F-150 Lightning will qualify for the full $7,500 credit. The Lincoln Corsair Grand Touring SUV will be eligible for half of the credit, while the Mustang Mach-E, Lincoln Aviator Grand Touring plug-in hybrid and E-Transit van won’t. 

Even Tesla, a company that is notably proficient at identifying and qualifying for clean energy credits and subsidies, initially said its Long Range and RWD Model 3 variants would lose half the credit, and then days later shared that, actually, those will lose the full credit. Tesla has also signaled that the Model Y might similarly be ineligible.

As we approach the new year, more automakers will likely share which of their electric vehicles do — or more likely don’t — qualify for the credit, and ultimately the Treasury Department will compile a list on its website. 

All this uncertainty speaks to the level of complexity involved in building an electric vehicle in a world where the supply chain still largely lives in and around China. But it also emphasizes the somewhat messy motivation of the guidelines.

The federal tax credit for electric vehicles is about to change in one particular way that will make it far more attractive to buyers. Starting January 1, the rebate — up to $7,500 for qualifying new EVs and up to $4,000 for qualifying used EVs — will be available when you buy the car, as opposed to something you have to claim when filing your taxes.

Even better, more than 7,000 car dealers have already signed up to make sure they are able to offer that point-of-sale rebate — accounting for nearly half of all new car dealerships in the country. 

But there’s a catch: There may not be many cars that qualify for the full $7,500 credit come the new year, thanks to new restrictions going into effect regarding the components that make up these zero-emission vehicles.

That’s a result of the way these credits were reimagined as part of President Biden’s Inflation Reduction Act. The process involved a lot of haggling, especially with U.S. Senator Joe Manchin, over the ultimate purpose of the credits. Should they be a lubricant for sales of zero-emission vehicles that help combat climate change, or a tool to incentivize building up the electric vehicle supply chain to North America? 

The answer wound up somewhere in the murky middle, as it often does. The credit was effectively split in two. Vehicles qualify for a $3,500 credit if the automakers follow certain guidelines on where they source battery materials, and another $3,500 provided they stick to similar rules for battery components. (Above that, vehicles have to be manufactured in North America to qualify for anything.) Starting in 2024, those sourcing requirements become more stringent. 

As a result, General Motors said this week only its Chevy Bolt will qualify for the full tax credit starting January 1. The more expensive Cadillac Lyriq and the brand new Chevy Blazer will not. GM, the country’s largest automaker, said it has to speed up plans to replace two minor components in order to get the Blazer and the Lyriq to comply with the new restrictions. 

Ford, meanwhile, said only its F-150 Lightning will qualify for the full $7,500 credit. The Lincoln Corsair Grand Touring SUV will be eligible for half of the credit, while the Mustang Mach-E, Lincoln Aviator Grand Touring plug-in hybrid and E-Transit van won’t. 

Even Tesla, a company that is notably proficient at identifying and qualifying for clean energy credits and subsidies, initially said its Long Range and RWD Model 3 variants would lose half the credit, and then days later shared that, actually, those will lose the full credit. Tesla has also signaled that the Model Y might similarly be ineligible.

As we approach the new year, more automakers will likely share which of their electric vehicles do — or more likely don’t — qualify for the credit, and ultimately the Treasury Department will compile a list on its website. 

All this uncertainty speaks to the level of complexity involved in building an electric vehicle in a world where the supply chain still largely lives in and around China. But it also emphasizes the somewhat messy motivation of the guidelines.