If You're an EV Fan, the Government Has News You Might Hate

New rules look to reduce U.S. dependence on China and other countries for battery supply chains for electric vehicles.

The warning appears at the very top of Tesla's  (TSLA) - Get Free Report website:

"Update-$7,500 tax credit is anticipated to be reduced for Model 3 on April 18. Take delivery now."

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The Model 3 uses a battery made in China and that's going to be an issue under new rules proposed by the Treasury Department on March 31, which will significantly shorten the list of electric vehicles that qualify for federal tax credits.

With these proposed rules, fewer new electric vehicles will qualify for a full $7,500 federal tax credit and many will get only half that amount. 

Reducing Dependence on China

Treasury Secretary Janet Yellen said in a statement that the proposals will help consumers save on a new clean vehicle while “creating American manufacturing jobs and strengthening our energy and national security.”

The rules come at a time when EV sales are increasing and automakers are looking to expand their EV operations.

The Inflation Reduction Act, which was passed in August, provided tax incentives and various subsidies to encourage manufacturers to build products that produce lower emissions.

One incentive that was appealing to drivers was the $7,500 tax credit given to consumers who purchase North American-made electric vehicles.

The new rules take effect April 18 and are aimed at reducing U.S. dependence on China and other countries for battery supply chains for electric vehicles.

The tax credit comes with several requirements, including one where batteries and components must have come from the U.S. or countries with which it has a free-trade agreement.

To be eligible for the $7,500 credit, clean vehicles must meet sourcing requirements for both the critical minerals and battery components contained in the vehicle. Vehicles that meet one of the two requirements will be eligible for a $3,750 credit.

Biden Big EV Proponent 

"New rules announced today will probably exclude most cars from the $7,500 federal EV tax credit, at least in the short term. But they don't take effect until April 18," Kelley Blue Book tweeted. "If you can take possession of a new EV before then, you still get the discount." 

President Joe Biden has been a big proponent of electric vehicles as he has signed into law incentives to help both consumers and automakers.

Last month, German automaker Audi  (AUDVF)  said it was considering building a plant in the U.S. to take advantage of the subsidies being offered to automakers in the Inflation Reduction Act.

And Stellantis  (STLA) - Get Free Report said on Feb. 23 that plans to build EVs and its battery supply in the U.S. were already in the works, but the IRA produced "further incentive to speed up."

Electric vehicle sales have been steadily increasing. 

In February, EVs accounted for 8.5% of all new vehicles that were leased or sold, which was a record high, according to a report from J.D. Power, up from a 4.9% market share a year ago and 2.4% market share in February 2021.

The average transaction price of a new electric vehicle was $59,739 in January 2023, according to data from Edmunds.

The government will publish by April 18th a revised list of qualifying models and tax credit amounts.

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