On Monday, April 17, 2023, the U.S. Treasury Department ("Treasury") released a list of automotive manufacturers and car models that will be eligible for an electric vehicle (EV) tax credit under the Inflation Reduction Act this year. American manufacturers came out on top, with models by Ford, General Motors, Stellantis (Jeep & Chrysler) and Tesla making the list. Factors that will determine a taxpayer's ability to claim the tax credit include the retail price of the vehicle, the income of the taxpayer, the location of final assembly, and critical mineral and battery component requirements.
Beginning April 18, 2023, the amount of the credit received will depending in part on whether the vehicle meets, (1) critical minerals requirements and (2) battery components requirements. Very generally, the "critical minerals requirements" mandate that a percentage of the critical minerals contained in the EV battery must come from the US or certain US-friendly countries. The percentage of critical minerals required to receive the tax credit begins at 40% this year, and increases 10% each year until it reaches 80% for vehicles placed in services after 2026. Treasury and its Internal Revenue Service (IRS), have set forth a three-part test to determine whether the critical minerals requirement has been met.
Similarly, there is a four-step test to determine whether the "battery components requirements" has been met, and it requires manufacturers to take a close look at the components of their EV batteries. A manufacturer must demonstrate certain factors, including (a) whether each battery component was manufactured or assembled in North America, (b) the incremental value for each battery component (and total value); and (c) the percentage of the value of the total battery components that were manufactured or assembled in North America.
As noted above, certain limitations to the tax credit may render a taxpayer unable to claim it, such as the taxpayer exceeding a certain income level and the retail price of the EV exceeding a certain amount ($80,000 for trucks, SUVs and vans, and $55,000 for other (smaller) vehicles).
The release on April 17 of the auto manufacturers and models eligible for the tax credit has been met with criticism for certain stakeholders noticing that Treasury's list of eligible vehicles consists of US manufacturers and models. Other industry stakeholders have applauded the efforts to support "Buy America" goals and to reduce dependency on critical minerals and components derived from certain nations deemed unfriendly to the U.S.