New EV Tax Credits Aim to Boost Sales and Domestic Supply Chain

The Biden administration is pushing for half of all new vehicle sales to be electric by 2030, and to help achieve this goal, the government is offering tax credits ranging from $3,750 to $7,500 for new electric vehicles (EVs). Additionally, there is a $4,000 credit available for used EVs.

These credits are aimed at boosting demand for EVs and are now available at the time of purchase from authorized dealers, rather than waiting for an income tax refund. However, qualifying for the credits depends on various factors such as income, vehicle price, battery makeup, and mineral requirements that become more stringent each year. EVs must also be assembled in North America to be eligible for the credits, with some plug-in hybrids also qualifying.

To promote the development of a domestic electric vehicle supply chain, new rules are being phased in this year. These rules restrict EV buyers from claiming the full tax credit if they purchase cars containing battery materials from countries considered hostile to the United States, such as China, Russia, North Korea, and Iran. However, small amounts of certain minerals used in batteries are exempt from this restriction until 2027 due to the difficulty in tracing their origin.

The National Mining Association criticized these exemptions, calling them a giveaway to China. Senator Joe Manchin also expressed concerns, stating that the new rule effectively endorses ‘made in China’ and violates the Inflation Reduction Act, which prohibits EVs containing materials from foreign adversaries from being eligible for the tax credit after 2024.

Despite these controversies, the rule change issued on Friday is expected to make more EVs eligible for credits in 2025 and 2026. The auto industry believes this change will benefit investment, job creation, and consumer EV adoption. However, challenges remain as China currently dominates crucial parts of EV battery supply and production.

Sales of electric vehicles have grown modestly this year, with only 13 out of 114 EV models sold in the U.S. qualifying for the full $7,500 credit. The slowdown in sales, led by Tesla, highlights automakers’ concerns about moving too quickly to attract EV buyers. Despite this, Treasury Secretary Janet Yellen emphasized the benefits of the clean vehicle credits in the Inflation Reduction Act, which not only save consumers money but also create jobs and enhance energy security.