The new battery sourcing requirements introduced under the U.S. tax credit system for electric vehicles significantly affect tax credit eligibility. Here’s how these requirements work:
Battery Sourcing Requirements
- Manufacturing and Assembly:
- In 2023, at least 50% of the vehicle’s battery components must be assembled or manufactured in North America to qualify for part of the credit.
- This percentage increases to 60% in 2024 and 2025, then rises by 10% annually until it reaches 100% by 2029.
- Critical Minerals Requirement:
- Starting in 2023, at least 40% of the value of critical minerals in the battery must be extracted or processed in the U.S. or a country with a free-trade agreement with the U.S. for another portion of the credit.
- This percentage increases to 50% in 2024 and 60% in 2025, then to 80% from 2027 onwards.
Impact on Tax Credit Eligibility
- Full Tax Credit Eligibility: Vehicles can receive the full $7,500 tax credit only if they meet both the battery component and critical minerals requirements.
- Partial Credit: If only one requirement is met, vehicles can qualify for a partial credit of up to $3,750.
- Additional Limitations: Vehicles must also meet other criteria, such as having a gross vehicle weight rating under 14,000 pounds and a battery capacity of at least 7 kWh. Additionally, the vehicle’s purchase price must not exceed $55,000 for cars or $80,000 for light trucks, and the buyer’s income must be below certain thresholds.
These requirements aim to promote domestic production of electric vehicle components and minerals, aligning with broader policy goals to boost U.S. manufacturing and reduce reliance on foreign supplies. However, the complexity and escalating thresholds may limit the number of vehicles that qualify for the full tax credit in the short term.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/how-do-the-new-battery-sourcing-requirements-affect-tax-credit-eligibility/
