U.S. loosens some electric vehicle battery rules, potentially making more EVs eligible for tax credits

DETROIT — The U.S. government has loosened some rules governing electric vehicle tax credits a bit, potentially making more EVs eligible for credits of up to $7,500.

The Treasury Department announced final regulations for the credits under the 2022 Inflation Reduction Act on Friday, giving automakers more time to comply with some provisions about where battery minerals can come from.

The credits range from $3,750 to $7,500 for new EVs. There's also a $4,000 credit for used ones.

They're aimed at juicing demand for EVs in an effort to reach a Biden administration goal that half of all new vehicle sales be electric by 2030. This year the credits are available at the time a vehicle is purchased from an authorized dealer rather than waiting for an income tax refund.

But qualifying for the credits depends on a person's income, the price of the vehicles and requirements related to battery makeup and minerals that get tougher each year. To get the credits, EVs must be assembled in North America. Some plug-in hybrids also can qualify.

Starting this year, complex rules are being phased in to promote development of a domestic electric vehicle supply chain. The rules would limit EV buyers from claiming the full tax credit if they purchase cars containing battery materials from China and other countries that are considered hostile to the United States.

The new rules largely target battery components from nations “of concern” — mostly China, but also Russia, North Korea and Iran.

This year half of the critical minerals in an EV's battery have to be mined or processed in the U.S., or a country with which it has a free trade agreement. Sixty percent of the battery parts have to be made or assembled in North America.

Starting in 2025, batteries with any critical minerals from nations of concern would not be eligible for any tax credits. But after getting comment from the auto industry and others, treasury officials decided to loosen that restriction.

Small amounts of graphite and other minerals would be exempt from the restriction until 2027, because their country or origin is nearly impossible to trace. Without the exemption, some vehicles that met nearly all of the requirements could get knocked out of tax credit eligibility due to tiny amounts that couldn't be traced, officials said.

The change is likely to make more EVs eligible for credits in 2025 and 2026, but the auto industry says that's difficult to tell until automakers finish tracing the origin of all the minerals.

“The EV transition requires nothing short of a complete transformation of the U.S. industrial base," John Bozzella, CEO of the Alliance for Automotive Innovation, a large industry trade group, said in a statement. “That’s a monumental task that won’t – and can’t – happen overnight.”

The rule change, he said, “makes good sense for investment, job creation and consumer EV adoption.”

At present, China dominates crucial parts of EV battery supply and production, even as automakers race to establish key mineral and components efforts elsewhere.

Of 114 EV models currently sold in the U.S., only 13 qualify for the full $7,500 credit, the alliance said.

Despite the tax credits, sales of electric vehicles grew only 3.3% to nearly 270,000 from January through March of this year, far below the 47% growth that fueled record sales and a 7.6% market share last year. The slowdown, led by Tesla, confirms automakers’ fears that they moved too quickly to pursue EV buyers. The EV share of total U.S. sales fell to 7.15% in the first quarter, according to Motorintelligence.com.

“The Inflation Reduction Act’s clean vehicle credits save consumers up to $7,500 on a new vehicle, and hundreds of dollars per year on gas, while creating good paying jobs and strengthening our energy security,” Treasury Secretary Janet Yellin said in a statement.