U.S. Treasury Bows to Industry Pressure On EV Tax Credit Scheme

The United States Department of the Treasury appears to have caved after receiving sustained pressure from the auto lobby, modifying how vehicles are classified in the updated EV tax credit scheme in a manner designed to make more vehicles eligible. Rather than leaning on Corporate Average Fuel Economy (CAFE) standards, the Treasury has said it will instead use the Environmental Protection Agency’s (EPA) Fuel Economy Labeling standard to determine when a vehicle is an SUV, pickup, sedan, or van.

"This change will allow crossover vehicles that share similar features to be treated consistently," the department explained on Friday. "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."

While the Biden administration managed to pass the relevant legislation in August, amendments designed to restrict the automotive sector from indefinitely benefiting from the credit scheme have become a sore spot for automakers. Despite the original EV tax credits allegedly existing just to get the ball rolling on battery electric vehicles way back in 2005, the industry has grown accustomed to green-washing itself in exchange for government subsidies. In fact, the Alliance for Automotive Innovation (the world’s largest automotive lobbying group) immediately issued a warning that the number of vehicles qualifying under the updated plan would be few in number when the climate bill was approved.

The biggest problem was that almost no EVs sold in the United States were capable of meeting the domestic content requirements designed to move the country away from being wholly reliant on Chinese-made batteries. But there were also provisions made to cap eligibility of the $7,500 tax credit based on income and MSRP. While SUVs, pickups, and vans can be priced up to $80,000 and still qualify, vehicles categorized as sedans, coupes, and station wagons were capped at $55,000.

Since crossovers typically have more in common with unibody passenger cars than they do pickups and SUVs they’re typically regulated as the former – including under federal CAFE standards. This meant a lot of all-electric crossovers would be categorized accordingly and capped at $55,000 for any tax credit eligibility.

By December, the Treasury said it was going to need more time to offer its own guidance on the rules and appears to have found a loophole in the successive weeks. By stating that it will no longer use CAFE to classify vehicles, the department has effectively opened up the door for a handful of EVs that would have previously been too expensive to be subsidized by tax dollars.

Examples include most versions of the Cadillac Lyriq, Ford “Mustang” Mach-E, Ford Escape PHEV, Tesla Model Y, and Volkswagen ID.4.

This comes after automotive executives held numerous meetings with White House officials that reportedly included Elon Musk. While Tesla originally opposed any continuation of the EV tax credit system – with the CEO saying battery-powered vehicles had already gotten enough help – the automaker now seems to be playing the game like every other manufacturer hoping to get a piece of government cheese. This also might explain why select Tesla models recently saw dramatic price changes in anticipation of the new rules. Legacy manufacturers have likewise tweaked pricing on their EVs of late, making them about as expensive as they could be while still qualifying for tax credits.

The Alliance for Automotive Innovation has already told companies to self-certify to the Treasury Department, effectively giving them the ability to decide how vehicles should be classified under the EV tax credit scheme. While a major win for the industry, we’re already seeing how it has managed to game the system and capture regulatory bodies. Though that’s nothing new. There are countless studies showing that legislators and government agencies are far more likely to pass laws or favor regulations supported by corporate entities than those backed by average citizens.

While the Treasury has yet to issue the proposed guidance on the consumer tax credit's critical mineral and battery component requirements – indefinitely maintaining eligibility for loads of vehicles that otherwise would not qualify – it still plans on having something by the end of March. However, the formal deadline came and went in December of 2022, with swirling accusations that the department was going out of its way to ensure automakers got what they wanted.

U.S. Senator Joe Manchin (D-WV) has said everything the Treasury is doing goes against the congressional intent of the so-called Inflation Reduction Act – especially the provisions designed to ensure material sourcing was moving back toward North America and away from China.

[Image: ZikG/Shutterstock]

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