Postponement of rules makes possible a major tax credit for electric vehicles early next year

WASHINGTON (AP) — People who want to buy an electric vehicle could get a bigger-than-expected tax credit on Jan. 1 because of a Treasury Department delay in crafting rules for tax breaks.

The ministry said late Monday that it would not complete rules governing the origin of minerals and battery parts until March.

As a result, it appears that buyers of electric vehicles assembled in North America with batteries manufactured in the United States, Canada or Mexico will be eligible for a full $7,500 tax credit under the reduction in inflation. The law requires that battery minerals and parts also be sourced from North America in order to obtain full tax relief, but this provision has been temporarily suspended.

The auto industry is watching the situation closely, but it could cause a dealer rush as most, if not all EVs are unlikely to qualify for full credit when the rules are all in place.

Experts say most automakers won’t be able to comply with requirements that battery components come from North America. For example, General Motors has already said it expects its electric vehicles to only get half the tax credit, or $3,750, until at least 2025.

So people who buy early next year before the rules are announced could pocket an additional $3,750.

“I imagine there will be a rush,” on EV dealerships for additional savings, said Sam Abuelsamid, principal e-mobility analyst at Guidehouse Research.

In the meantime, the Treasury said it would release information by the end of the year on the “intended direction” of the rules to help automakers identify eligible electric vehicles, the department said in a statement. communicated. But the rules will not be effective until March.

Other requirements, such as new caps on buyer income and the price of the electric vehicle, will still come into effect on January 1.

“This should allow some consumers to get an EV a little cheaper than they otherwise would have,” said Chris Harto, senior transportation and energy policy analyst for Consumer Reports magazine.

With a base price of $26,595 including shipping, General Motors’ Chevrolet Bolt hatchback is among the lowest-priced electric vehicles on sale in the United States today. A $7,500 tax credit would drop the price to just over $19,000, less than the average price of a used vehicle in the United States, which could drive buyers away.

GM says it is monitoring changes in tax credit rules. “We feel well positioned, but we are still awaiting guidance for vehicle eligibility,” spokeswoman Jeannine Ginivan said on Tuesday.

Automakers have criticized battery sourcing and assembly requirements as complex, difficult to trace and unrealistic in the short term, with no electric vehicle model sold in the United States likely to immediately qualify for the credit. full tax of $7,500. Starting next year, the new law requires batteries to be manufactured in the United States, Canada or Mexico, with 40% of battery minerals coming from North America.

It’s part of a US effort to reduce reliance on batteries now mostly made in China and shift supply chains to the US. Fifty percent of battery parts must come from the United States or a country with which it has a free trade agreement. These percentages increase every year.

More generally, US allies including South Korea, the European Union and other countries are also upset that the new law will disqualify their foreign-made electric vehicles unless or until that they can open new American factories, which could take several years.

The new law continues to require electric vehicles to be assembled in North America, which came into effect when President Joe Biden signed the measure in August. Still in effect Jan. 1, new caps say electric sedans must cost $55,000 or less, or less than $80,000 for pickups, SUVs and vans. A car buyer must have an income of $150,000 or less if single, or $300,000 if filing jointly.

Abuelsamid said it was unclear whether someone could order an EV before the rules took effect and still get full credit. He suspects people will struggle to find electric vehicles, which, like other automobiles, are still in short supply as the auto industry struggles to get computer chips and other parts to run factories.

Harto said the temporary delay makes sense for the Treasury Department as it irons out technical issues mining minerals and manufacturing battery components for its rulemaking. In the meantime, consumers can benefit if they also pay attention to potential dealer profit margins, he said.

“The EV market has been limited and I don’t see that changing over the next couple of weeks, so that’s the real risk – that this additional tax credit will be eaten up by dealership profit margins,” said Hardo.

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Krisher reported from Detroit. Associated Press writer Fatima Hussein contributed to this report.

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