The U.S. Department of the Treasury and the IRS unveiled the final rules for the federal electric vehicle tax credit, a key step in the Biden administration’s plan to accelerate the adoption of electric vehicles (EVs). The regulations, released May 3, are seen by some as a balance between incentivizing EV adoption and safeguarding against perceived threats from Chinese imports.
Treasury Secretary Janet Yellen highlighted the administration's commitment to fostering domestic manufacturing and energy security in a statement regarding the final rules. Since President Biden's election, over $173 billion in private-sector investment has been announced across the U.S. clean vehicle and battery supply chain. Yellen says this reflects the positive impact of the Inflation Reduction Act (IRA), massive climate and energy legislation passed a couple of years ago.
“The Inflation Reduction Act’s clean vehicle credits save consumers up to $7,500 on a new vehicle, and hundreds of dollars per year on gas, while creating good-paying jobs and strengthening our energy security,” Yellen noted in a release.
Related: How the EV Tax Credit Works
Final EV tax credit regs
The final federal EV tax credit rules maintain strict requirements, meaning only about 20% of electric models qualify for the federal EV tax credit.
- Vehicles with a majority of their battery minerals sourced from abroad or linked to the Chinese government remain ineligible.
- This provision is designed to address concerns about dependency on foreign supply chains.
The Biden administration argues that efforts to regulate foreign suppliers have been successful, yielding investments in U.S. manufacturing. However, critics, including Sen. Joe Manchin (D-W.Va.), have voiced concerns about perceived loopholes that could benefit China. Manchin, who will not seek reelection in 2024, labeled the final regulations as "outrageous and illegal," accusing the administration of effectively endorsing "Made in China."
Other lawmakers have similar criticisms. Last week, Sen. Kevin Cramer (R-N.D.) and Sen. John Barrasso (R-Wyo.) co-sponsored proposed legislation to repeal tax credit for purchases of new, used, and commercial EVs. Their bill also proposes eliminating the federal EV charger tax credit and the so-called EV lease “loophole.”
Meanwhile, some automakers welcome the flexibility provided by the rules, including a grace period for sourcing graphite from China, a critical mineral in EV batteries. The two-year temporary exemption is seen as a gradual transition towards domestic sourcing.
What the EV rules mean for consumers
The final rules generally don't depart from the proposed regulations released last year. So, many electric vehicle consumers are already familiar with the small number of vehicles that qualify for a full or partial federal tax credit. As Kiplinger has reported, several stricter requirements kicked in as of Jan. 1, 2024, along with a new option for buyers to take the federal EV credit at the point of sale.
Since the point-of-sale tax credit option became available, demand has been high. According to the Treasury Department, more than 100,000 eligible buyers (about 90%) have claimed the credit on new electric vehicles at registered dealerships. About 75% of buyers purchasing used EVs have opted for the up to $4,000 credit at the time of purchase.
However, the final regulations come at a time when sales of EVs are slowing. Data show that the EV share of total new vehicles sold in 2024 is 7.3%, a decrease from last year. Tesla sales have also declined this year, reportedly down more than 13% compared to the first quarter of last year.
