Biden Administration To Unveil New EVs Tax Credit Rules On Friday

The Biden administration is expected to release new tax-credit rules on Friday that could dramatically reshape the fledgling American market for electric vehicles according to WSJ.

The Treasury Department rules will restrict a popular consumer tax credit for electric vehicles that contain battery components and critical minerals sourced from foreign adversaries, according to senior administration officials. The policy primarily targets China and aims to onshore more electric vehicle and battery production in the U.S. and with allied nations.

But concerned by global supply chain disruptions, administration officials have privately discussed granting automakers a six- to 18-month reprieve from the new restrictions. This would allow companies time to adjust their sourcing while still benefitting from the $7,500 EV tax credit. 

The temporary exemption would aid all automakers, but especially Tesla, as its made-in-China Model 3 Rear-Wheel Drive vehicles were expected to see a reduced tax credit drop to $3,750 starting Jan. 1 due to their lithium iron phosphate battery chemistry.

Dealerships Complained

On the opposite side, a coalition of nearly 4,000 auto dealerships has urged President Joe Biden to slow the transition to electric vehicles more broadly, saying the U.S. lacks adequate charging infrastructure and consumer demand remains weak despite new model availability.

“These vehicles are ideal for many people, and we believe their appeal will grow over time,” the Dealership Coalition wrote in a letter to Biden this week. “The reality, however, is that electric vehicle demand today is not keeping up with the large influx of BEVs [battery electric vehicles] arriving at our dealerships prompted by the current regulations.”

Electric vehicles accounted for 7.9% of new vehicle sales in Q3 2023, according to Cox Automotive. That is up from 6.1% during the same period last year.

The Treasury Department has received significant feedback from automakers, dealerships, and environmental groups regarding its proposed electric vehicle tax-credit rules, highlighting the policy’s far-reaching implications for the auto industry.

Exactly which vehicles will qualify for the full $7,500 federal tax incentive come 2024 and beyond is still to be determined. But one change taking effect on Jan. 1 promises to stimulate demand: allowing consumers to take the tax credit at the point of sale rather than waiting to file taxes the following year.  

Major automakers like Hyundai remain bullish about the longer-term electric vehicle market in the U.S., citing increased consumer interest in its battery-powered models. But other dealers warn showroom visits and sales volumes remain weak — with excess electric vehicle inventory piling up on lots.

Tesla, which only sells online and directly to consumers, does not face the same channel conflicts as traditional automakers. With two U.S. factories ramping production, America’s largest electric car maker appears poised to benefit from Biden administration policies — if it receives a temporary waiver to adjust battery and mineral sourcing in the near-term.

Our Thoughts

Tesla has set the bar in the electric vehicle market, and automakers must match its range and price to stay competitive. This is Tesla’s playground, and it’s time for challengers to bring their A-game to claim their share. 

With BYD, a formidable Chinese EV maker, yet to enter the US market, the competition is about to heat up even further. Automakers need to innovate and differentiate themselves to capture consumer attention and emerge victorious in this electrifying race.

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