US updates EV tax credit rules, enabling more electric cars to be eligible

The U.S. Department of the Treasury and the Internal Revenue Service (IRS) today updated the rules for the electric vehicle tax credit with new requirements that should allow more electric cars to become eligible.

Even though this measure has been in effect for more than a year, the United States has still frequently updated its reformed federal incentive for electric vehicles.

Today, the U.S. Department of the Treasury and the Internal Revenue Service (IRS) announced final rules for the program.

The reform launched in 2023 brought many important changes, including removing the limit of 200,000 vehicles per manufacturer and adding eligibility criteria for buyers of electric vehicles and MSRPs for electric vehicles to limit the tax breaks given to the rich to buy expensive vehicles.

These changes were intended to ensure fairness in the program, but the Biden administration also introduced new protectionist initiatives at the same time.

The vehicles had to be assembled in North America to obtain the credit. It also requires that progressively higher percentages of battery materials and components be produced in North America and countries that have free trade agreements with the United States.

This last part has been the most problematic for automakers. They have worked to both trace the source of all their battery materials, through initiatives such as the Battery Passport, and to move their supplies to North America where possible.

Due to these difficulties, the Treasury Department and the IRS have decided to relax some of these rules, particularly regarding the supply of graphite, electrolytic salts, binders and additives, until 2027.

This should allow more electric vehicles to retain access to the tax credit through 2027, as the requirements begin to quickly become important:

Meanwhile, many automakers and battery suppliers are investing in North American sources for these materials and their processing.

With graphite for example, GM and Panasonic have both invested in Nouveau Monde Graphite, which aims to become a new source of processed graphite in North America.

Currently, only 22 of the 104 electric vehicles sold in the United States are eligible for the tax credit. More electric vehicles are expected to become eligible as automakers begin to adapt to the new rules.