On March 31, the Treasury Department released The Notice of Proposed Rulemaking (NPRM), providing guidance on new clean vehicle credits under The Inflation Reduction Act of 2022.
The Inflation Reduction Act of 2022: Amended a tax credit for new clean vehicles purchased, either a plug-in electric vehicle (EV) or fuel cell vehicle (FCV). Intended to lower costs for consumers and enhance supply chains, the law details eligibility for the credit based on consumers and vehicles.
NPRM: Beginning April 18, 2023 consumers purchasing electric automobiles that do not contain at least 50% of North American manufactured or assembled components and 40% of North American extracted or processed critical minerals in the batteries, will not qualify for the $7,500 tax credit. The value percentages of these materials will increase each year.
BATTERY COMPONENT TAX CREDIT REQUIREMENTS:
- Classify North American manufactured or assembled battery components.
- Confirm the cumulative value of each battery component.
- Confirm the cumulative value of total battery components.
- Divide the total cumulative value of North American battery components by the total cumulative value of all battery components. This will calculate the qualifying percentage.
CRITICAL MINERAL TAX CREDIT REQUIREMENTS:
- Establish the procurement chains.
- Classify qualifying critical minerals.
- Calculate the qualifying content.
The following list of countries are included in the NPRM: Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Japan, Jordan, Korea, Mexico, Morocco, Nicaragua, Oman, Panama, Peru, and Singapore. The Treasury Department confirmed if other countries sign critical mineral agreements, they will also be eligible for the credit.
In order to preserve the tax credit, China will be cut out of battery component supply chains in 2024 and critical mineral supply chains in 2025. The Treasury Department will provide further guidance on what would qualify as a foreign entity of concern and what would qualify as being exempt from the restriction.
The NPRM is predicted to cause changes in the market. Depending which vehicles qualify for full, partial, or no credit will determine the impact on consumer behavior.
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