EV Update: U.S. Department of the Treasury Releases Final Guidance on Clean Vehicle Tax Credits

You may have seen in recent news that the U.S. Department of the Treasury released final rules regarding the popular clean vehicle tax credits – up to $7,500 for new and $4,000 for qualifying used clean vehicles. The final regulations don’t change the fundamentals of the tax credits that most electric vehicle consumers have grown familiar with that have been in place since January 1^st of this year – including the current income limits, caps on eligible vehicle prices, and ability to transfer the credit at the point of sale from a registered dealer. The rules do, however, provide further clarity and guidance on how automakers can produce clean vehicles that are eligible for the credit.

While transitioning to zero and partial zero emissions vehicles is the primary goal of this program, the Biden administration has also set forth strict guidelines as to how and where the vehicles and their batteries are manufactured to be eligible for the credit. The main goal of these restrictions is to encourage investment in U.S. mineral sourcing and manufacturing. The final rules set forth the following for newly manufactured vehicles:

1. The vehicle’s final assembly must be in North America.
2. 50% of the battery’s critical minerals must be extracted or processed in the U.S. or countries that have a free trade agreement in effect with the U.S. for 2024. The requirement is indexed 10% upwards in each of the following years until 80% is reached in 2027. Meeting this requirement makes a new vehicle eligible for a $3,750 tax credit (½ of the total eligible credit).
3. 60% of the battery components must be manufactured or assembled in North America for 2024 and 2025. The requirement is indexed 10% upwards in each of the following years until 100% is reached in 2029. Meeting this requirement makes a new vehicle eligible for another $3,750 tax credit (the other ½ of the total eligible credit).
4. Lastly, the final regulations make permanent the allocation-based accounting rules with respect to critical battery minerals and components extracted and assembled in Foreign Entities of Concern (FEOC). Current FEOCs are China, Russia, North Korea, and Iran at the time of the rules release. For 2024, a vehicle cannot be eligible for the clean vehicle tax credit if it contains battery components from a FEOC. For 2025 and beyond, a vehicle cannot be eligible for the clean vehicle tax credit if it contains battery components or critical minerals from a FEOC.

These strict requirements have polarized players in the automotive space. On one hand, they incentivize investment in U.S. jobs in manufacturing and mining. On the other hand, they slow down the rate of adoption of clean vehicles by limiting the number of EVs and PHEVs eligible for the credit – which seemingly goes against the Administration’s push to its aggressive clean vehicle adoption objectives. At the time of this writing, there were 114 EV and PHEV models for sale in the U.S. Just 22 models qualify for the credit – only 13 of which receive the full $7,500. (Note: HHM recommends checking the complete list of credit-eligible vehicles here when purchasing/selling an EV or PHEV). As a result of the stricter rules placed in service this January, data shows that EVs as a share of total new vehicles sold in 2024 is down from 2023.

If you have any questions regarding EV tax credits, how your dealership can register the transfer of the credits at the point of sale, or what models are eligible for the credits, feel free to reach out to us at (423) 541-2030. As always, HHM strives to stay on top of changes in the automotive landscape and will provide updates as rules and regulations are changed.