Electric Car Tax Credit Rules Change Next Week. No One Knows How.

A Tesla service centerIf you’re considering buying a new electric vehicle (EV) and counting on the $7,500 federal EV tax credit to lower the price, you might want to act as fast as possible. The rules governing which vehicles qualify for the credit change in one week, and no one seems to know what exactly the new rules will say.

Reuters explains, “The U.S. Treasury Department on Wednesday said it will release guidance next week on sourcing requirements for electric vehicle battery tax subsidies.”

Related: How Do Electric Car Tax Credits Work?

Laws, Regulations, and the Difference Between Them

Congress re-wrote the law governing EV tax credits, and President Biden signed the move into law last summer. The law allows Americans a $7,500 federal tax credit on the purchase of many new EVs.

But the law has many purposes. For one thing, it aims to promote the domestic economy by ruling out EVs built on other continents. For another, it sets income limits so the wealthiest Americans can’t reduce their tax burden by buying EVs.

Related: EV Tax Credits Helping Domestic Automakers; Hurting Hyundai, Kia

When a new law is passed, it’s up to federal regulators to write the regulations explaining how the government will implement it.

Congress writes laws. But it leaves writing regulations — specific rules that govern how laws will be applied — to the departments of the federal government’s executive branch. Regulations often take longer to write and involve consultation with affected industries and periods for public comment.

Agencies can even revise regulations without changing the law.

For instance, the new EV tax credit law set different price caps for cars and SUVs. Vehicles priced over the cap don’t get tax credits because Congress didn’t want to use tax law to help wealthier Americans buy luxury SUVs.

The IRS initially adopted one set of rules governing what qualifies as a sport utility vehicle. It ruled out several vehicles automakers market as SUVs. After some pushback, the IRS changed the rules and allowed those vehicles to qualify for the higher SUV price cap.

Government agencies have written most of the regulations for the new law, but not quite all of them.

Now, We’re Waiting on Rules About Battery Contents

One section of the law governs where the minerals found in EV batteries originate. Treasury was supposed to publish rules outlining that process in January.

When January came, it delayed them until March. With March nearly over, the department says they’ll publish the rules next week.

Most of today’s EVs batteries use lithium, cobalt, and other rare minerals mined outside the U.S. The auto industry gets most of those minerals from China, Reuters explains. “The rules are aimed at weaning the United States off dependence on China, which dominates the global supply chains of products like EV batteries and solar panels.”

The law instructed Treasury to write rules that phase in mining requirements.

“A buyer can get up to $3,750 of the $7,500 credit if at least 40 percent of the car’s critical minerals like lithium and cobalt, as measured by value, were extracted or processed in North America or a country with which the United States has a free-trade agreement,” explains the energy industry publication E&E News. “If the minerals are recycled, that process would have to happen in North America.”

The law raises that requirement over time, reaching 80% in 2027.

Next week’s rules will likely explain how the government plans to implement that requirement.

Automakers Nervous Tax Credits Could All but Disappear

The automotive industry is nervous.

The Alliance for Automotive Innovation, a major industry trade group, has expressed concern that the requirements could ask too much, too soon.

Last August, the alliance said that no current vehicles “would qualify for the full credit when additional sourcing requirements go into effect. Zero.” The industry has been working to change its supply chains since then, but the alliance has provided no public update.

That means that we simply don’t know which vehicles, if any, will meet the requirements when they kick in next week. We know the industry has been scrambling to meet them. But, without knowing what they say, no one is sure whether they’ll meet them come April.

For now, shoppers can find a list of cars that qualify for the tax credits on the IRS website. That list could shrink, conceivably to zero, as soon as next week.

We’ll bring you updates as soon as we have them. But, if you’re depending on the credit, you may want to make your purchase this weekend just to be safe.

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