The Treasury Department has released an updated list of electric vehicles that qualify for all or part of the Inflation Reduction Act’s tax credits, providing mixed news for U.S. and foreign automakers and prospective buyers.

Under the guidelines for meeting the IRA’s domestic content provisions, released last month, U.S. automakers fared well, with most of their models on the revised list, but some qualifying for only half the credit. The guidelines for 2023 models require that 40% of critical minerals in an EV’s battery and 50% of other battery components be sourced from the U.S. or from a country with which the U.S. has a free trade agreement. (See Fewer EVs May Get IRA Tax Credit Under New Domestic Content Rules.)

To qualify for the full $7,500, EVs must also meet the IRA’s limits on manufacturer’s suggested retail price (MSRP), and final assembly of the car must be in North America. The MSRP limits are $55,000 for a passenger EV and $80,000 for SUVs and light-duty pickup trucks.

A previous list, issued at the end of 2022 did not factor in the domestic content requirements, allowing more than 20 EVs and plug-in hybrid electric vehicles (PHEVs) to qualify for tax credits.  

All Tesla’s Model 3 and Model Y vehicles qualified for the full $7,500 tax credit on that list, but now the standard, rear-wheel drive Model 3 — with a range of 272 miles and a $42,000 MSRP — only qualifies for $3,750, signaling that its battery does not meet the domestic content requirements for the full credit. The topline Performance Model 3 is still eligible for the full credit.

Similarly, Ford’s F-150 Lightning electric pickup qualifies for $7,500, but the automaker’s popular Mustang Mach-e SUV is only eligible for $3,750.

All European and Asian models previously on the list were cut, including the Nissan Leaf, Volkswagen’s ID.4 and BMW’s 330e plug-in hybrid vehicle.

GM has the most models qualifying for the full $7,500 tax credit, with its Cadillac Lyriq and Chevy Bolt, Blazer, Equinox and Silverado still on the list, the result of its investments in domestic supply chains, the company said in a statement released Monday.

“Over the next 10 years GM will offer a broad selection of qualifying vehicles across numerous segments and price points, which will bolster our EV transformation as well as the U.S. production and adoption that these incentives were designed to support,” the company said.

Ford, which holds the No. 2 spot in the U.S. EV market — after industry leader Tesla — released its own list of models qualifying for tax credits earlier this month. Like GM, the company is promoting its plans for continued supply chain growth and delivering more EV models in the coming years.

Challenging but Achievable

Sen. Joe Manchin (D-W. Va.) wrote the domestic content provisions into the IRA to support the buildout of a home-grown EV supply chain and to cut U.S. automakers’ dependence on China for the critical minerals and other components in EV batteries. The law required the Treasury Department to issue guidelines for the EV tax credit by the end of 2022, but the agency only released partial guidelines, delaying rules on the domestic content provisions until March. (See Treasury Delays Key Rules for IRA’s EV Tax Credits.)

Manchin made an unsuccessful attempt to force implementation of the domestic content provisions with a bill he introduced in January, and he was not satisfied with the domestic content guidelines Treasury issued March 31. But he has not taken any further action. (See Transparent, Traceable Supply Chains Key to EV Domestic Content Rules.)

But as gas prices again edge up, the Biden administration is framing the slimmed-down list as still providing U.S. consumers with a good range of choices for purchasing an EV with the full or partial tax credit, while also supporting ongoing growth of domestic supply chains. Getting both halves of the credit may be challenging, but it is achievable, according to an administration official speaking on background.

The Treasury guidelines are clear, workable and having the intended effect, the official said. According to a preliminary administration analysis, close to 65% of EV sales in the first three months of 2023 met the IRA’s requirements on vehicle price and final assembly, qualifying them for at least the $3,750 credit, the official said.

Further, 90% of those vehicles also met the IRA’s domestic content requirements, the official said.

Other administration officials have been keen to point to the $45 billion in private sector investment in EV and battery supply chains that has been announced since President Joe Biden signed the IRA in August, For example, Korean automaker Hyundai is building a factory in Georgia expected to go into production in 2025, with an estimated production of 300,000 EVs a year.

Similarly, Japan’s Nissan announced a $500 million investment to transform a Mississippi plant for EV production.

EV Sales Continue to Grow

The big question is whether and to what extent the reduction in EV models eligible for the IRA tax credits might slow EV adoption and put a brake on Biden’s goal of EVs becoming 50% of all new passenger vehicle sold in the U.S. by 2030.

Phil Jones, CEO of the Alliance for Transportation Electrification, is expecting a “hiccup” in the EV market as automakers adjust to the domestic content guidelines and focus on domestic supply chains. “There will be some slowdowns for certain vehicles and certain manufacturers, obviously, because consumers are price-sensitive,” Jones said in a recent interview with NetZero Insider. 

“But I don’t think it’s going to be significant,” Jones said. “There’s so much pent-up demand for these vehicles out there, and the major issues, in my view … it’s chips; it’s semiconductors; it’s components of an automobile other than the battery.”

U.S. EV sales seem to support that view. EV registrations in the U.S. in 2022 topped more than 750,000, a 57% jump from 2021, according to data from Experian cited in insideevs. Tesla accounted for 64% of sales, followed by Ford and Chevy. EVs accounted for 7.1% of all new vehicle sales in January, according to Experian, with Tesla once again in the lead with sales of more than 46,000.