- The US government walked back a controversial part of the new electric-car tax credit.
- The rule change means that more electric SUVs from Tesla and others qualify for the $7,500 incentive.
- Elon Musk called the original rules “messed up.”
The US Treasury Department on Friday updated the rules surrounding the new electric-vehicle tax credit to make more models eligible.
The new guidelines — which expand the definition of an SUV — are a big win for Ford, Tesla, General Motors, and Volkswagen, as more of their vehicles now qualify for the $7,500 consumer incentive designed to drive demand for cleaner cars. They’re also a boon for buyers, who can now pick from more eligible vehicles.
Why does it matter if an electric car is an SUV or not? Under the new federal EV tax credit included in Democrats’ Inflation Reduction Act, it matters quite a lot, actually.
The law stipulates that qualifying SUVs, pickups, and vans can’t cost more than $80,000, while other cars can’t be priced above $55,000. Essentially, SUVs can be pretty expensive and still benefit from the credit, while smaller vehicles need to be much cheaper.
So when the government classified a whole bunch of vehicles as non-SUVs that are generally considered to be SUVs, automakers were understandably irked. On Twitter, Tesla CEO Elon Musk called the rules “messed up” and “bizarre.” The new guidelines seem to remedy the issue.
John Bozzella, president of the Alliance for Automotive Innovation, a trade group, called the update a “very good decision that clears up some EV tax credit confusion and instantly helps customers shopping today (and tomorrow) for an electric crossover or SUV.”
Initially, the Volkswagen ID.4 was considered an SUV in some versions, while the similarly proportioned Ford Mustang Mach-E and Cadillac Lyriq were not. The seven-seat Tesla Model Y qualified for the $80,000 price cap, while the five-seat model did not. Tesla slashed the Model Y’s starting price, bringing it below the $55,000 threshold. Ford fired back with a price cut of its own on the Mach-E.
The new framework means that more expensive variants of the Model Y and Mach-E that previously didn’t qualify for a credit now will. The Lyriq, which starts at around $63,000, is newly eligible as well. The Treasury Department said it’s making the new classifications retroactive for anyone who bought an EV since January 1.
Keep in mind that the list of eligible EVs isn’t set in stone. New rules governing where a car’s battery components can come from are set to arrive in March.