US car brands will benefit the most from electric vehicle tax breaks

U.S. brands like Tesla and General Motors will benefit the most from rules that determine which electric vehicles are eligible for tax credits starting Tuesday. Foreign automakers like Hyundai will be at a significant disadvantage due to restrictions aimed at excluding China from the supply chain.

Only 10 vehicles will initially qualify for tax credits of $7,500, less than a quarter of battery-powered cars on sale in the United States. But those 10 include many of the most popular models and accounted for two-thirds of electric vehicle sales before the new rules came into effect.

Tesla’s Model 3 and Model Y, the best-selling electric vehicles in the United States, will get the full $7,500 credit, with one exception, according to a list released Monday by the Treasury Department. The cheapest version of the Model 3 will only get half the credit because its battery is made in China.

GM’s Chevrolet Bolt, one of the lowest-priced electric vehicles on the market, will also qualify, as will the sport utility vehicles and pickup trucks the company plans to start selling this year.

Fewer Ford vehicles will qualify for the full $7,500 credit due to rules requiring that a certain percentage of battery components and minerals like lithium come from domestic sources or trade allies. Ford’s Mustang Mach-E, the third best-selling electric vehicle in the United States last year, according to Kelley Blue Book, will only be eligible for half the credit because its battery made in Poland does not meet the requirements national supply. The F-150 Lightning pickup will continue to qualify for full credit.

Chrysler and Jeep, divisions of Stellantis, do not yet sell battery-only cars, but several of their hybrid models will be eligible for at least some of the credit. Hybrid vehicles may qualify if their batteries have a capacity of at least seven kilowatt hours.

The rules give U.S. automakers an at least temporary advantage over rivals like Toyota, Volkswagen and Nissan. No foreign automakers were on the Treasury’s list, which is expected to increase as companies adjust their supply chains.

Automakers eligible for tax credits will now have a head start on electric vehicle sales taking off. “It’s causing a multiplier effect in the market,” Paul Jacobson, GM’s chief financial officer, told reporters in New York this month. The rules, he added, are “very consistent with the strategy we had already adopted”.

The rules stem from the Cut Inflation Act, which Democrats passed last year to tackle climate change and encourage domestic manufacturing, among other things. The Treasury Department was responsible for drafting regulations based on the legislation.

The law aims to reduce the auto industry’s dependence on China, which makes most of the world’s batteries and dominates raw material processing. The law also sets limits on selling prices and excludes people who earn more than $150,000 a year and couples who earn more than $300,000. The rules also exclude vehicles made outside of North America, including in allied countries like South Korea and Germany.

“We weren’t happy,” said José Muñoz, general manager of Hyundai and Genesis Motor North America, in an interview at the New York International Auto Show this month. Hyundai’s Ioniq 6 electric sedan was named World Car of the Year at the show, but won’t be eligible for tax credits because it’s assembled in South Korea.

Seoul-based Hyundai is investing $10 billion to build car and battery factories in Georgia, which will allow the company to meet the requirements of the Curbing Inflation Act, but not before several years.

Automaker and South Korean government officials have asked the Biden administration to allow Hyundai and Kia cars to receive credits while factories are under construction, but were told the law does not allow such an exception, Mr. Muñoz said.

The Hyundai auto plant in Georgia is expected to start producing cars in 2025. The battery plant, which Hyundai is building with SK On, will start production in 2026. “We are working to bring that date forward so that we can qualify sooner. “, said Mr. , says Muñoz.

Tesla had previously told potential buyers that the lowest-priced version of the Model 3 sedan would only get half the credit, or $3,750. This month, Tesla reduced the price of this car by $1,000 to $41,990. After partial credit is taken into account, the car will effectively cost many buyers just over $38,000, about as much as a top-spec Honda Accord and cheaper than a BMW 3 Series sedan. entry level.

Other versions of the Model 3 and Model Y SUVs will continue to receive full credit. Tesla sold more electric vehicles in the United States last year than all other automakers combined, according to Kelley Blue Book.

Some auto executives said the rules were too restrictive and undermined efforts to limit climate change. Other critics, like Senator Joe Manchin III, Democrat of West Virginia, have complained that the Biden administration’s rules are too lenient.

Administration officials argued that the regulations strike a balance between promoting electric vehicles and building a national supply chain.

According to the administration’s tally, in addition to the 10 vehicles eligible for full credit, seven are eligible for half credit. Vehicles can get half the credit if, for example, their battery components come from the United States, Canada, or Mexico, but the minerals used to make the batteries don’t meet sourcing requirements.

Ten previously qualified vehicles, including the Nissan Leaf and Volkswagen ID.4, will be removed from the list, at least temporarily.

The ID.4, an SUV made in Chattanooga, Tennessee, did not make the new list as it is still evaluating its supply chain. But Pablo Di Si, the general manager of Volkswagen Group of America, said he expected the model to qualify. Volkswagen was fourth behind Tesla, GM and Ford in U.S. electric vehicle sales in the first three months of the year, according to Kelley Blue Book.

Five electric vehicles that GM is selling or planning to sell this year will be eligible. In addition to the Bolt, Cadillac Lyriq and electric versions of the Chevrolet Equinox and Blazer SUVs as well as the Silverado pickup will be eligible for full credit. GM and LG Energy Solution began producing battery cells at a plant in Ohio.

The new rules could be revised in response to public comments. It is up to automakers to show they are eligible, but they are subject to audit by the Internal Revenue Service and could be penalized if they provide incorrect information. The IRS publishes a list of eligible vehicles which is updated regularly.

A provision in the Commercial Vehicles Act allows companies to collect credits for all leased vehicles even if the cars do not meet supply and manufacturing requirements. Automakers and their dealerships can pass the savings on to people who rent cars, and as a result Hyundai has seen an increase in leases, Muñoz said. The company also offers cars through monthly subscriptions to allow customers to take advantage of tax incentives and try electric cars.

But that won’t make up for lost sales, because most people would rather buy than rent or lease cars, Muñoz said.

“We can’t be competitive unless we just lower the price dramatically,” he said. “It’s impossible to make it work from a financial point of view.”