U.S. car brands will benefit most from electric car tax breaks

U.S. brands like Tesla and General Motors will benefit most from rules that determine which electric vehicles qualify for tax credits starting Tuesday. Foreign carmakers like Hyundai will be at a significant disadvantage because of restrictions aimed at cutting China out of the supply chain.

Only 10 vehicles will initially qualify for tax credits of $7,500, less than one-quarter of the battery-powered cars on sale in the United States. But those 10 include many of the most popular models and accounted for two-thirds of electric vehicle sales before the new rules took effect.

Tesla’s Model 3 and Model Y, the bestselling electric vehicles in the United States, will qualify for the full $7,500 credit, with one exception, according to a list published by the Treasury Department on Monday. The least expensive version of the Model 3 will qualify for only half the credit because its battery is made in China.

GM’s Chevrolet Bolt, one of the cheapest electric vehicles on the market, will also qualify, as will sport utility vehicles and pickups that the company plans to begin selling this year.

Fewer Ford vehicles will qualify for the full $7,500 credit because of rules requiring that a certain percentage of the battery components and minerals like lithium come from either domestic sources or trade allies. Ford’s Mustang Mach-E, the third bestselling electric vehicle in the United States last year, according to Kelley Blue Book, will be eligible for only half the credit because its Polish-made battery does not meet domestic sourcing requirements. The F-150 Lightning pickup will continue to qualify for the full credit.

Chrysler and Jeep, divisions of Stellantis, do not yet sell cars that run solely on batteries but several of their hybrid models will qualify for at least some of the credit. Hybrid vehicles can qualify if their batteries have a capacity of at least 7 kilowatt-hours.

The rules give U.S. carmakers at least a temporary advantage over competitors like Toyota, Volkswagen and Nissan. No foreign automakers were on the Treasury list, which is expected to grow as companies adjust their supply chains.

Carmakers that qualify for the tax credits will now have a head start as sales of electric vehicles take off. “It causes a multiplier effect in the market,” Paul Jacobson, GM’s chief financial officer, told reporters in New York this month. The rules, he added, are “very consistent with the strategy that we had already adopted.”

The rules grow out of the Inflation Reduction Act, which Democrats passed last year to fight climate change and encourage domestic manufacturing among other things. The Treasury Department was responsible for writing regulations based on the legislation.

The law seeks to reduce the auto industry’s reliance on China, which makes most of the world’s batteries and dominates the processing of raw materials.

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