US Govt Revises Electric Vehicle Tax Credit: Boost to Tesla and Other EVs

Last Updated on February 4, 2023 by techtudum

The US Treasury Department has announced a change in the electric vehicle tax credit that could enable more vehicles to be eligible. Instead of using the Environmental Protection Agency’s corporate average fuel economy (CAFE) standard, the department will use the Fuel Economy Labeling standard to determine a vehicle’s classification as a sedan, SUV, pickup truck, or van. This alteration should help clear up the uncertainty surrounding the $7,500 tax credit that was written into the Inflation Reduction Act (IRA) last year.

US Govt Revises Electric Vehicle Tax Credit - Boost to Tesla and Other EVs

The Treasury Department stated in a press release that the change will make it possible for crossover vehicles that have similar characteristics to be treated in a uniform manner and align the classifications for the clean vehicle credit with the labeling on the vehicle and website. Buyers or those who took delivery of vehicles after January 1, 2023, that didn’t qualify under the CAFE standards but met other IRA requirements can now claim the credit.

Previously, certain vehicles, such as the Cadillac Lyriq and certain Model Y trims from Tesla, were classified as sedans under the CAFE standard and thus ineligible for the tax credit due to their suggested retail prices exceeding the $55,000 cap for sedans. The updated list on the IRS website now includes these vehicles under the $80,000 price cap for qualifying SUVs.

The changing classifications have frustrated automakers, including Tesla CEO Elon Musk, who called the decision to disallow the credit for some Model Y trims while granting it for plug-in hybrids like the Jeep 4xe “messed up.” The Alliance for Automotive Innovation, which represents manufacturers such as GM, had asked the Treasury Department to let automakers self-certify their vehicles based on their marketing. The recent update was called a “very good decision” by John BoZzella, the alliance’s president, as it helps customers shopping for an electric crossover or SUV.

The updated list of qualifying vehicles may only be in effect until March, when the Treasury Department is expected to release its guidance on the IRA’s stringent critical mineral and battery component requirements. Last week, Senator Joe Manchin, who was involved in the crafting of the EV tax credit, introduced a bill that would temporarily halt the handing out of the tax credit due to the IRS’s delay in releasing the battery component rules.


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