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

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

Even though it has been in effect for over a year, the US has still been frequently updating its reformed federal incentive for electric vehicles.

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

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

Those changes were intended to address the program’s fairness, but the Biden administration also introduced new protectionist initiatives at the same time.

It required for the vehicles to be assembled in North America to get the credit. It also requires gradually higher percentages of battery materials and components to be produced in North America and in countries with free trade agreements with the US.

This last part has been the most problematic one for automakers. They have been scrambling to both try to trace the source of all their battery materials, through initiatives like the battery passport, and to move sourcing to North America when feasible.

Because of those difficulties, the treasury department and IRS have decided to relax some of those rules, especially regarding the sourcing of graphite, electrolyte salts, binders, and additives, until 2027.

This should enable more electric vehicles to keep access to the tax credit until 2027 as the requirements are starting to become substantial quickly:

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

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

Currently, only 22 out of the 104 electric vehicles for sale in the US are eligible to the tax credit. More EVs are expected to become eligible as automakers start to adapt to the new rules.