Starting on Tuesday, American brands such as Tesla and General Motors are likely to benefit the most from new rules that will determine which electric cars qualify for tax incentives. Foreign carmakers such as Hyundai will face a major disadvantage due to restrictions designed to cut China out of their supply chain.
Tax credits worth $7,500 will be available for only 10 cars at first, which is less than one-quarter of all battery-powered vehicles sold in the United States. These 10 models include some of the most popular and represented two-thirds the electric vehicle sales prior to the new rules.
According to a list released by the Treasury Department, Tesla's Model 3 & Model Y are the most popular electric vehicles sold in the United States. However, there is one exception. The Model 3's least expensive model will only qualify for half of the credit due to its battery being made in China.
G.M.'s Chevrolet Bolt will also qualify as one of the most affordable electric vehicles available, along with sport utility vehicles, pickups, and other vehicles that the company intends to sell this year.
Ford will be able to claim the full $7500 credit for fewer vehicles due to rules that require a certain percentage (of battery components, minerals and lithium) from domestic sources or trading partners. Ford's Mustang Mach-E - the third-best-selling vehicle in the United States according to Kelley Blue book - will only be eligible for half of the $7,500 credit, because its battery is made in Poland and does not meet the domestic sourcing requirement. The F-150 Lightning will continue to be eligible for the full credit.
Chrysler and Jeep are divisions of Stellantis. They do not sell cars that only run on batteries yet, but some of their hybrids will qualify at least for a portion of the credit. Hybrid cars can qualify as long as their batteries have at least a seven-kilowatt hour capacity.
The rules provide U.S. automakers with a temporary edge over their competitors, such as Toyota, Volkswagen, and Nissan. The Treasury list did not include any foreign automakers, but this is expected to change as companies adapt their supply chains.
The carmakers who qualify for tax credits now have an advantage as the sales of electric cars take off. Paul Jacobson said to reporters in New York that the tax credits have a multiplier impact on the market. He added that the rules are "very consistent" with our strategy.
The Inflation Reduction Act was passed by Democrats last year in order to combat climate change, encourage domestic manufacturing and other purposes. Treasury Department wrote the regulations in response to the legislation.
The law aims to reduce auto industry reliance on China. China is the largest producer of batteries in the world and controls the raw material processing. The law limits the price of cars and excludes couples and individuals earning more than $300,000. These rules exclude all vehicles manufactured outside North America. This includes those made in countries such as South Korea, Germany and other allied nations.
Jose Munoz said, "We weren't happy", in an interview with the New York International Auto Show, this month. Hyundai's Ioniq 6 was named World Car of the Year, but it will not qualify for tax credits as it is built in South Korea.
Hyundai, based out of Seoul, will invest $10 billion in Georgia to build battery and car plants. This investment will enable the company to meet Inflation Reduction Act (IRA) requirements, but it won't be for a few years.
According to Mr. Munoz, officials from the South Korean government and Hyundai asked the Biden administration if they could qualify Hyundai and Kia vehicles for credit while their factories were still under construction. However, the law does not allow this exception.
Hyundai's factory in Georgia will begin production in 2025. Hyundai's battery plant with SK On will begin production in 2026. Munoz stated that they were working to advance the date in order to qualify sooner.
Tesla informed potential buyers that only the Model 3 sedan's least expensive model would be eligible for the full credit of $3,750. Tesla has cut the price by $1,000 this month to $41,990. After partial credit, the car is likely to cost a few buyers a bit more than $38,000. This is about the same price as a top of the line Honda Accord, and less than an entry level BMW 3 Series sedan.
The Model 3 S.U.V. and Model Y S.U.V. are also available in other versions. The full credit will be given. According to Kelley blue book, Tesla sold more electric cars in the United States than all other automakers combined last year.
Some auto executives claim that the rules are restrictive and undermine climate change efforts. Some critics like Senator Joe Manchin III of West Virginia have said that the rules set by the Biden administration are too lenient.
Officials from the administration have claimed that regulations are a good balance between promoting electric cars and building an domestic supply chain.
According to the administration, seven vehicles qualify for half credit. The administration counts that seven vehicles qualify for the half credit, in addition to the 10 that are eligible for the full credit.
Ten vehicles, including the Nissan Leaf, the Volkswagen ID.4, and others that were previously eligible, will be removed from the list at least temporarily.
The ID.4, a S.U.V. The ID.4, an S.U.V. Pablo Di Si said that he expects the model to be eligible. Volkswagen was fourth in the U.S. electric vehicle sales, behind G.M. According to KelleyBlue Book, Volkswagen was fourth in U.S. sales of electric vehicles in the first quarter behind Tesla, G.M.
G.M. Five electric vehicles that G.M. G.M.
New rules may be modified in response to public comments. The carmakers must prove that they qualify. However, they will be audited by the Internal Revenue Service. They could also face penalties if they give incorrect information. The I.R.S. The I.R.S. publishes an updated list of vehicles that are eligible for the tax credit.
Companies can collect credits even if their leased cars do not meet the sourcing and manufacturing standards. The savings can be passed on to car leasers by automakers and dealers. As a result, Hyundai's leases have increased, according to Mr. Munoz. The company also offers cars via monthly subscriptions so that customers can benefit from tax incentives while trying electric cars.
Munoz says that this will not compensate for the lost sales because people prefer to buy cars rather than lease or rent them.
He said, "We can't compete unless the price is dropped dramatically." It's not possible to make this work financially.