Effective January 1st, 2024, the eligibility requirements for the federal $7,500 electric vehicle tax credit have tightened, resulting in several popular EV models no longer qualifying for the full credit. This will likely impact EV sales and pricing as manufacturers and dealers adjust to the changes.
Background
The federal EV tax credit was introduced over a decade ago to incentivize the production and purchase of electric vehicles in the US. Initially the credit phased out after an automaker sold 200,000 EVs, but the Inflation Reduction Act (IRA) passed in 2022 amended the policy to remove the cap.
However, the IRA also added new requirements around battery component and critical mineral sourcing that take effect on January 1st, 2024. Vehicles must now have a certain percentage of battery components manufactured or assembled in North America to qualify for the full $7,500 credit. This aims to boost domestic manufacturing and reduce reliance on foreign supply chains.
Vehicles Losing Eligibility
With the updated requirements taking effect, analysis shows that around 70% of the over 30 fully-electric models currently availabile in the US will no longer qualify for the full tax credit [1]. This includes popular vehicles like:
- Tesla Model 3, Model Y
- Nissan Leaf
- Ford Mustang Mach-E
- Hyundai Ioniq 5
- Kia EV6
See the table below for a summary of which vehicles meet the new sourcing requirements:
| Electric Vehicle Model | Meets New Requirements | Eligible for Full $7,500 Credit |
|---|---|---|
| Tesla Model 3 | No | No |
| Tesla Model Y | No | No |
| Nissan Leaf | No | No |
| Ford Mustang Mach-E | No | No |
| Hyundai Ioniq 5 | No | No |
| Kia EV6 | No | No |
| Chevrolet Bolt EV | Yes | Yes |
| Chevrolet Bolt EUV | Yes | Yes |
| Rivian R1T | Yes | Yes |
| Rivian R1S | Yes | Yes |
This will likely dampen EV demand and sales, at least in the short term, as the tax credit has been shown to be an important factor for consumers considering an electric vehicle purchase.
Automaker and Dealer Impacts
The loss of eligibility will hit automakers like Tesla, Ford, and Hyundai hardest given the popularity of models like the Model Y, Mustang Mach-E and Ioniq 5.
Many will likely have to adjust pricing and sales strategies. Some analysts predict a “price war” could occur as manufacturers drop EV prices to offset loss of the tax credit and maintain sales volumes [2]. Most automakers should have new models that meet the battery requirements coming in 2024/2025, but need to bridge the gap until then.
Dealers will also need to adapt their sales tactics to promote vehicles that are still eligible and educate customers on the complex policy changes. Over 7,400 dealers have registered to offer “point-of-sale rebates” as an alternate way to discount EVs by the credit amount upfront [3]. But the vast majority may not be fully ready to implement the instant rebates on January 1st.
Consumer Impacts
The stricter requirements mean consumers will have fewer EV options eligible for the $7,500 credit in 2024. Only around a dozen 2023 models qualify, most of which are more expensive, lower production vehicles from manufacturers like Lucid, Rivian, and BMW [4].
For buyers in the market now, experts recommend considering new vehicle purchases before December 31st to take advantage of the credit before the updated rules take effect [5]. This last minute purchasing could lead to a surge in Q4 2022 EV sales. Shoppers who miss the deadline shouldn’t necessarily avoid EVs given factors like rising gas prices, but should calculate costs carefully and negotiate discounts to make up for loss of the tax credit.
Future Outlook
The Inflation Reduction Act does include ramped up incentives for domestic battery and component production which should lead to more “Made in America” options in coming years. The Biden administration projects that over 50 EV models will qualify by 2030 as manufacturers onshore more of their supply chains [6].
So while 2024 will see disruption, the tightened eligibility requirements are designed to spur domestic manufacturing investments that strengthen America’s clean vehicle industry over the long term. The coming months will reveal how automakers, dealers, and consumers adapt in response.
Sources
[1] https://insideevs.com/news/702784/ev-tax-credit-2024-official/
[2] https://finance.yahoo.com/news/may-price-war-coming-electric-150000323.html
[3] https://thehill.com/policy/energy-environment/4382067-treasury-says-7400-dealers-have-signed-up-for-electric-vehicle-tax-credit/
[4] https://www.businessinsider.com/list-evs-electric-cars-qualify-for-federal-tax-credit-2024-1
[5] https://www.cnbc.com/2023/12/28/7500-ev-tax-credit-may-be-easier-and-harder-to-get-in-2024.html
[6] https://news.yahoo.com/bidens-ev-tax-credit-just-123001913.html
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