US Reverses Course On EV Tax Credits, Allowing For More EVs To Qualify

After lobbying by automakers such as General Motors Co. and Stellantis NV, the Biden administration has expanded the electric vehicle tax credit to include more crossover SUVs.

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In addition, the Treasury Department announced Friday that it would broaden the definition of what counts as a sport-utility vehicle so that more buyers will be able to take advantage of the $7,500 credit. SUV buyers who buy SUVs costing up to $80,000 are eligible for the tax credits, while buyers who buy passenger cars costing more than $55,000 receive nothing.

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For determining which vehicles qualify for an SUV, Treasury will begin using EPA fuel economy ratings. In other words, consumers who have already purchased vehicles under the new definition will be eligible for the credit, according to the agency.

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General Motors and Tesla Inc. traded higher, with shares of US automakers mixed. The stock of Ford Motor Company plunged as much as 11% after disappointing earnings were reported on Thursday.

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The Treasury Department stated in a statement that "this move would allow crossover vehicles that share similar features to be treated consistently." It will also match the categorization shown on the vehicle label and on the consumer-facing website FuelEconomy.gov for purposes of the clean vehicle credit.

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The initiative to make the adjustment, which rejects a more restrictive SUV classification, is credited to GM and Stellantis. It refers to vehicles like the $63,000 Cadillac Lyriq from General Motors and the high-end Mustang Mach-E electric vehicles from Ford Motor Company. and the Model Y from Tesla Inc., which the Treasury previously classified as automobiles, are eligible for credits.

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Tesla and Ford recently reduced the prices of their Mach-E and Model Y models in an attempt to qualify under the earlier standard - at least in part.

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In addition to Ford's Escape Plug-in Hybrid SUV and Volkswagen AG's ID.4, the adjustment could also apply to other vehicles.

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John Bozzella, head of the Washington-based trade group Alliance for Automotive Innovation, told Trade Algo That the action is "a very excellent decision that clears up some EV tax credit misunderstanding and immediately assists customers shopping today (and tomorrow) for an electric crossover or SUV."

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There may, however, be some limitations to the benefits. EV batteries and minerals that are critical to EV operations may not qualify for the credit when Treasury publishes new rules in March under the Inflation Reduction Act.