The $7,500 electric vehicle tax credit in the Inflation Reduction Act, which Biden signed in August, doesn’t limit the number of credits, but ruled out the full $7,500 credit for new EVs assembled outside North America.
In April, the Treasury Department, writing regulations for the law, narrowed the tax credit eligibility further. The regulations require that a certain percentage of the components and minerals in car batteries be sourced from the U.S. or in countries that are U.S. trade allies.
Limiting the tax credit is meant to encourage EV component supply chains, which China now dominates, to shift toward the U.S. and its allies, said Jeremy Michalek, director of the Vehicle Electrification Group at Carnegie Mellon University in Pittsburgh…
Michalek said he expects the new regulations to slow EV sales temporarily. Slowik and Brinley said they don’t expect the new tax credit regulations to slow EV sales, because the manufacturing increase will make more vehicles eligible for the credits and because demand for EVs remains high.