The US Treasury Department has amended the criteria for clean vehicles eligible for a subsidy under Biden’s Inflation Reduction Act (IRA). While some crossovers didn’t qualify, the administration has rectified the vehicle classification definitions, which raises the price limits for specific models — a clear win for opposing car makers.
The IRA, launched in August 2022, led to a confusing and awkward division. For example, where the Model Y qualified in its seven-seat configuration, it lost the subsidy with two seats less. And the Cadillac Lyriq EV didn’t qualify, as it was considered a crossover, not an SUV.
The typology is vital because it raises the limit from $55 000 (for cars) to $80 000 (for pickups and SUVs). It also led to certain equipment levels of the Mustang Mach-E being allowed and others not.
Overshooting the target
The classification rules met strong opposition from both the carmakers and public opinion, which concluded that, in this way, the act was overshooting its target, especially in the case of the Model Y, widely regarded as one of the essential accelerators for EV adoption in the US. However, the correction is retroactively valid, so Americans who bought their car as of the 1st of January apply as well.
At first, Treasury looked at the Environmental Protection Agency (EPA) CAFE standards, which strongly emphasize weight, to label vehicles. However, this has changed to the consumer-facing EPA Fuel Economy Labeling standard. “This change will allow crossover vehicles that share similar features to be treated consistently,” explains the Treasury on its website.
CEO of Tesla, Elon Musk, had been talking with officials about the original ruling after tweeting that it was ‘messed up’. However, in an official reaction, General Motors expressed appraisal for the amendment stating that “tax credits are a proven accelerator of electric vehicle adoption, and we are excited that qualifying customers will be able to take advantage of a $7 500 federal clean vehicle tax credit (…) In addition, the alignment on classification will provide the needed clarity to consumers, dealers, regulators, and manufacturers”.
It’s probably no coincidence that Tesla raised prices again for the Model Y a few days ago since it doesn’t have to aim for the $55 000 threshold now. Sticker prices rose to $1 500.
Under Biden’s Inflatory Reduction Act, only cars made in North America are eligible. So the only BEV from a European manufacturer that applies is the Volkswagen ID.4. However, the IRA also includes clean vehicles like plug-in hybrids, so the Audi Q5 TFSI e or the BMW 330e and X5 45e benefit as well.
Though the protectionist EV measure from Biden’s Administration must fence off the market introduction of cheap Chinese electric cars, the EU is hit as well. According to Transport & Environment, the risk for Europe is not so much losing sales of vehicles from its brands in the US, but the shift of investment and capital in the complete ecosystem for battery vehicles, like cell factories and other peripheric facilities building an entire EV industry.
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