2 min read

New Rules Limit Tax Credits for Electric Cars: American Brands Triumph, Foreign Car Makers Face Disadvantage

New Rules Limit Tax Credits for Electric Cars: American Brands Triumph, Foreign Car Makers Face Disadvantage
Photo by Sam Warren / Unsplash

New rules that take effect today (2023-04-18) will limit the $7,500 tax credits for electric cars to those made domestically with minerals from the US or trade allies. American brands like Tesla and General Motors will benefit most from the rules that determine which electric vehicles qualify for tax credits. Foreign carmakers such as Hyundai will be at a disadvantage due to restrictions aimed at cutting China out of the supply chain. The rules will give US carmakers at least a temporary advantage over competitors like Toyota, Volkswagen and Nissan. The rules exclude vehicles made outside North America, including in allied countries such as South Korea and Germany.

As already suspected, this is another step by the United States to strengthen its own economy with regulation. At the end of last year, the US government had already banned the export of knowledge and machines for chip production to China. We are heading towards a cell-based world, where countries build up and strengthen their own economic zones - contrary to the previous idea of globalization.

At least for now, ten vehicles, such as the Nissan Leaf and the Volkswagen ID.4, will no longer be included in the list of qualified vehicles. The Volkswagen ID.4, which is an SUV manufactured in Chattanooga, Tennessee, is still evaluating its supply chain and therefore did not make it to the new list. However, Pablo Di Si, the CEO of Volkswagen Group of America, anticipates that the ID.4 will eventually meet the requirements for qualification. Kelley Blue Book reports that in the first quarter of the year, Volkswagen ranked fourth in U.S. electric vehicle sales, following Tesla, G.M., and Ford.

Comments from the public could lead to revisions of the new regulations. Car manufacturers must demonstrate their eligibility, but they could face penalties from the Internal Revenue Service if they provide incorrect information. The I.R.S. maintains an updated list of qualified vehicles.

The legislation has a provision that applies to commercial vehicles, allowing companies to collect credits for all leased vehicles even if they do not meet sourcing and manufacturing requirements. This provision enables automakers and dealers to pass on the savings to people who lease cars. Consequently, Hyundai has experienced an increase in leased cars. Additionally, the company offers cars through monthly subscriptions to provide customers with access to tax incentives and opportunities to try electric cars.