The US government’s efforts to fight global warming could suffer a setback next year as new regulations will reduce the number of electric vehicles that qualify for a federal tax credit. The tax credits of up to $7,500 per vehicle have made electric cars more affordable, but stricter rules coming into effect on January 1 aim to get automakers to manufacture vehicles and parts in North America rather than China. This stems from the Inflation Reduction Act and adds another set of restrictions, disqualifying vehicles containing components made in China or made elsewhere by a firm under the control of the Chinese government.
This will make it more difficult for qualifying vehicles to receive the subsidy, and as a result, the list of eligible fully electric vehicles could be limited to only a handful. The stricter rules throw up another impediment to electric vehicles, which are already growing less briskly due to high interest rates and drivers’ anxiety about finding charging stations.
Tesla, Ford, General Motors, Volkswagen, Rivian, and Nissan are the only companies offering electric cars that qualify for at least a partial credit, and models from Audi, BMW, Chrysler, Jeep, and Lincoln also qualify for tax breaks.
In response to the new regulations, automakers are still making investments to be able to qualify vehicles for the credits and other subsidies. Foreign automakers excluded from the subsidy have opposed the complex nature of the electric vehicle credit, but lawmakers have said the goal is to force carmakers to realign their supply chains.
Market forces are pushing down electric vehicle prices, and federal subsidies and loans for factories and electric car plants are helping to lower them even further. Analysts expect electric vehicles to become less expensive than internal combustion models without tax credits within the next several years. The US is expecting electric vehicle sales to increase by 32 percent in 2024 compared to 47 percent in 2023.
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