The U.S. Treasury Department’s recent decision to extend electric vehicle (EV) tax credits to leased vehicles has stirred up discussions about the eligibility of vehicles assembled outside North America. Starting from January 1, consumers who lease electric vehicles will now be able to qualify for up to $7,500 in commercial clean vehicle tax credits. This move has been welcomed by many, as it has the potential to make electric vehicles more accessible and affordable for consumers. However, the decision has also raised questions about the definition of North American assembly and its impact on the global EV industry.
This development comes after South Korea, Europe, and certain automakers advocated for using commercial electric vehicle tax credits to enhance consumer access to EVs. Manufacturers argued that these credits could help lower leasing prices, thus making electric vehicles a more attractive option for consumers. While the new Treasury guidance benefits leased electric vehicles, it does not alter the criteria for what constitutes North American assembly for EVs purchased outright.
The context for this decision is the $430 billion U.S. Inflation Reduction Act (IRA) passed in August, which terminated the $7,500 consumer tax credits for electric vehicle purchases assembled outside North America. This move sparked discontent among nations like South Korea, the European Union, and Japan. Critics argued that the law was unfairly restricting the growth of their respective EV industries.
Additionally, the IRA imposes several regulations beyond the assembly location. It imposes limitations on battery minerals and component sourcing, sets income and price thresholds for qualifying vehicles, and aims to phase out the use of Chinese battery minerals or components. Notably, the commercial credit lacks the same sourcing restrictions as the consumer credit, allowing for more flexibility in international collaboration.
However, U.S. Senator Joe Manchin, who chairs the energy panel, expressed concerns about the Treasury’s decision. He urged the department to halt the implementation of both commercial and new consumer EV tax credits, claiming that such a move could benefit “companies looking for loopholes.” Manchin indicated that he would seek legislative measures to counteract what he considers a potentially risky interpretation by the Treasury.
In contrast, the European Commission lauded the Treasury’s consumer leasing guidance, asserting that it would not necessitate changes to the established or projected business models of EU producers. The commission deemed this development a positive outcome for both sides. Nonetheless, it continues to advocate for equitable treatment of EU clean vehicle producers when it comes to EV purchasers.
Among the automakers, Toyota Motor Co expressed the necessity of the rule to expand the domestic production of EV batteries while maintaining America’s energy independence. John Bozzella, CEO of the Alliance for Automotive Innovation, welcomed the leasing guidance as consistent with the industry’s recommendation. He regarded it as a favorable step toward the broader adoption of electric vehicles in the United States.
The IRA law also brought significant changes to the EV industry, lifting the previous cap that had rendered manufacturers like Tesla and General Motors ineligible for EV tax credits. Starting from January 1, these manufacturers can now benefit from these tax credits, further incentivizing the electric vehicle market.
In an effort to provide transparency, the Internal Revenue Service (IRS) released a preliminary list of eligible 2023 EVs. This list includes models from 13 automakers, such as Tesla, Volkswagen, Volvo Car, Ford Motor, Rivian, Chrysler-parent Stellantis, and Nissan. The IRS intends to release a more comprehensive list by the upcoming Saturday.
Nevertheless, the Treasury Department disclosed that it would delay releasing proposed guidance on the requisite sourcing of EV batteries until March. Consequently, some EVs that do not initially meet these new requirements may enjoy a brief window of eligibility in 2023 before the battery-related rules take effect. While this delay may lead to some initial confusion, John Bozzella predicted that the rules would eventually stabilize as manufacturers adapt to the new regulations.
