The Treasury Department announced changes to the definition of sport utility vehicles, a move that opens up more electric vehicles to the tax credits passed in the Inflation Reduction Act that could have otherwise been excluded due to price limits.
Treasury put out a notice Friday saying it changed its vehicle classification standard used for SUVs and other vehicles types, which is expected to allow models such as the Tesla Model Y and Cadillac Lyriq access to the expanded subsidies by subjecting them to a higher MSRP cap that limits credits.
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The Inflation Reduction Act, Democrats’ $369 billion green energy and health spending bill that became law in August, put an MSRP cap on vehicles such that models exceeding the cap may not be eligible for tax credits.
A new electric sedan costing more than $55,000 is ineligible under the new law, while an SUV with an MSRP above $80,000 is ineligible.
Under the previous standard, the Model Y and Lyriq were considered sedans, and due to their MSRPs, which are above $55,000, they would have been priced out of the tax credit.
The change “allows crossover vehicles that share similar features to be treated consistently” and was enacted to make it “easier for consumers to know which vehicles qualify under the applicable MSRP cap,” Treasury said.
Tesla CEO Elon Musk had complained about Treasury’s previous standard, while other automakers, including General Motors and Ford, asked the department to change the rules.
The amended clean vehicle tax credit provides up to $7,500 for new vehicle purchases, so long as the vehicles fall under the MSRP caps and purchasers’ income doesn’t exceed specified thresholds.
The new law also requires that, beginning this year, electric models purchased for consumer use may only be eligible for the full $7,500 tax credit if they are assembled in North America and meet two other conditions: at least 40% of the critical minerals used in a vehicle’s battery are sourced from the U.S. or a country with which the U.S. has a free trade agreement, and at least half of the battery’s components are manufactured in North America.
The percentages increase in the following years.
Treasury has been under immense pressure from trade partners in Europe and Asia who said the subsidies terms would disadvantage them. The EU and its national governments, such as France and Germany, as well as South Korea and Japan, have been lobbying the administration to ease up on the requirements.
The assembly requirement is in effect, Treasury said, but the battery requirements are not yet in effect because it has not issued final guidance on the requirements. Treasury expects to publish guidance in March.
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Treasury’s delay has angered Sen. Joe Manchin (D-WV), an architect of the tax credits’ battery requirements, who introduced legislation to prevent the department from extending credits to purchases until it issues its final guidance.
