US Treasury delays EV battery guidance; more vehicles could qualify for 2023 tax credits

The United States Treasury department announced it will delay its guidance in regard to the sourcing requirements for battery materials in order for EVs to qualify for federal tax credits. Beginning January 1, 2023, a slew of new requirements will still take effect, but the lack of battery guidelines could offer a brief window in 2023 where electric vehicle purchases that may not fit the pending battery sourcing requirements still qualify for some level of tax credits.

In late July 2022, the US Senate shared that it was moving forward to vote on EV tax credit reform, and one of the most prominent parts of the bill included the long-awaited and fought-over electric vehicle tax credit reform.

On August 7, 2022, the Inflation Reduction Act was approved by the Senate and a week later signed into law by President Joe Biden. From the very start, the biggest issue most of us have had with the Inflation Reduction Act has been deciphering its revised requirements in order for a given EV to qualify for tax credits.

We’ve broken it down step by step here, but here are the key points relative to today’s news:

• $7,500 credit is broken into two binary pieces, meaning the vehicle either qualifies for each piece of the credit or it doesn’t.
• $3,750 of the new credit is based upon the vehicle having at least 40% of its battery critical minerals from the US or countries with a free trade agreement with the US. This is a list of countries with free trade agreements with the US. 
• The other $3,750 of the new credit is based on at least 50% of the battery components of the vehicle coming from the US or countries with a free trade agreement with the US.
• The government has until the end of the year to develop guidance on the battery requirements. 

Did you catch that last line? That’s worth noting because the US Treasury Department has now come out and shared that it needs until at least March to determine the EV battery requirements, despite other tax credit requirements outlined in the Inflation Reduction Act kicking in less than two weeks from now.

Some EVs may qualify for tax credits through March 2023

As reported by Reuters, the US Treasury Department has delayed its battery guidance for qualifying EV tax credits until sometime in March. Still, requirements like North American assembly of the EV as well as caps on MSRP and annual salary will still go into effect on January 1 as planned.

However, since the US government is unable to provide guidance on the battery requirements, there is a possibility that some EVs sold between January 1 and “sometime in March” that will inevitably not comply with the pending battery guidance may briefly still qualify for federal tax credits.

This could come as welcome news for consumers and automakers alike, since a significantly smaller list of EVs will qualify for tax credits when the revised terms begin in the new year. Automakers have begun moving their production to North America in order to once again qualify, but that large of a transition can take years.

The US Treasury said it will “release information on the anticipated direction” of its battery guidance by December 31. Furthermore, “the critical mineral and battery component requirements take effect only after Treasury issues that proposed rule.”

This story is ongoing, and we are sure to get a bit more clarity before the ball drops on 2022, but a few extra months without stringent battery rules could benefit consumers looking to save money on a new EV thanks to federal tax credits, especially with automakers like Tesla and GM once again qualifying.