U.S. Bill Amendment Would Cut Off EV Tax Credits That Don’t Meet Battery Rules

A new bill proposal could cease the eligibility of most electric vehicles (EVs) for the $7,500 federal tax credit, if they do not meet specific battery component rules, according to a report from Automotive News Canada on Wednesday.

The bill is expected to be introduced by U.S. Senator Joe Manchin (D-West Virginia) on Wednesday, with the amendment to the Inflation Reduction Act dubbed the American Vehicle Security Act.

The bill would make EV battery sourcing more strict, and would release eligibility from the Treasury’s proposed battery guidance on restrictions, which is supposed to be released in March after the federal agency missed its year-end deadline to share the rules in 2022.

The rules are set to detail mineral and battery component requirements further, and clarify things such as price caps, vehicle classification and more.

If passed, it would mean no credit would be available to any new EV that does not meet the critical mineral and battery sourcing requirements, effective retroactively as of January 1, 2023.

The delay could make more EVs eligible for the $7,500 credit for the time being, though it has also left many consumers, automakers and dealers operating on incomplete requirement guidelines for the complex web of federal tax eligibilities and ineligibilities.

The release of the new guidance is expected to offer eligibility through two separate focuses: one on meeting increasingly strict requirements for battery components coming from the U.S. rather than “foreign entities of concern” by 2024, while the other is based on minerals coming from the U.S. or free-trade partners by 2025.

While around 40 models are currently eligible in the limbo between January 1 and the March Treasury guidance announcement, Manchin’s bill would effectively limit eligibility during the time frame, making few or no vehicles qualify for the critical minerals portion of the credit.

Currently, Tesla’s Model 3 and select Model Y vehicles qualify for the $7,500 in EV tax credits.