Tesla, Ford and GM win in EV tax credit change

A few more electric vehicle models now qualify for the federal EV tax credit, including GM’s Cadillac Lyric, the Ford Mustang Mach-E and Tesla’s five-seater Model Y, thanks to a change by the U.S. Treasury.

The U.S. Treasury Department updated Friday the vehicle classification standard, revising a definition that determines which EVs are eligible for clean vehicle tax credits available under the Inflation Reduction Act. The change, which automakers had lobbied the Biden administration for, comes down to one question: what makes a vehicle a sedan, SUV, crossover or wagon?

That classification matters, because the federal tax credit had two different prices caps. A car, sedan or wagon would qualify if priced at $55,000 or below, while an SUV had an $80,000 price cap.

The Inflation Reduction Act of 2022, which was signed into law in August 2022, includes a complex set of requirements around which EVs and other clean vehicles do and do not qualify for a $7,500 EV tax credit. The IRA amended the Qualified Plug-in Electric Drive Motor Vehicle Credit (also known as IRC 30D), which gave consumers up to $7,500 in tax credits for buying a battery electric vehicle and certain plug-in hybrid vehicles. This reworked law, now called the Clean Vehicle Credit, includes a reduced $4,000 credit for used EVs and adds other clean vehicles in the mix, such as “qualified fuel cell vehicles.”

Qualifying for the tax credit is another matter. There are a number of factors that determine if a vehicle will qualify for the EV tax credits, including the buyer’s income, the price of the vehicle and where it was assembled. Under the new law, battery electric SUVs had to be $80,000 or cheaper and sedans.

The U.S. Treasury said it updated the standard to make it easier for consumers to know which vehicles qualify under the applicable price cap. The agency will now use the EPA Fuel Economy Labeling standard rather than the EPA CAFE standard. That matters because it means crossover vehicles that share similar features will be treated consistently. It will also align vehicle classifications under the clean vehicle credit with the classification displayed on the vehicle label and on the consumer-facing website FuelEconomy.gov.

The upshot? Vehicle models like the Cadillac Lyric, which starts at $62,990, as well as the Ford Mustang Mach-E, which depending on the trims is priced between $45,995 and $63,995, now qualify for the $7,500 EV tax credit. Other vehicles that now qualify includes the five-seater Tesla Model Y.