US lets more SUVs get electric vehicle tax credit

President Joe Biden's administration will allow more models of "crossover" vehicles to be eligible for an expanded $7,500 electric vehicle federal tax credit, in a win for automakers.

The US Treasury Department today revised how it classifies cars and sport utility vehicles (SUVs) when determining which models can receive the tax credit, which was expanded in last year's Inflation Reduction Act. The change will offer consistent treatment of crossover vehicles, Treasury said, and make it easier for consumers to know which vehicles qualify for the subsidy.

Passenger cars are only eligible for the new tax credit if the price is less than $55,000, but pickup trucks and SUVs can go up to $80,000 and still receive the tax credit under the new law. Treasury had initially classified light crossover vehicles as cars, making some higher-priced models ineligible for the subsidy.

But had automakers complained that Treasury's initial classification would be confusing to consumers because crossover vehicles are designed and marketed as smaller SUVs. Today's change means vehicles like the Volkswagen ID.4, Lincoln Corsair, Ford Mustang Mach-E and Cadillac Lyriq will be eligible for the tax credit at a sale price up to $80,000, rather than $55,000.

"A very good decision that clears up some EV tax credit confusion and instantly helps customers shopping," Alliance for Automotive Innovation chief executive John Bozzella said.

The Biden administration's expansive view of which vehicles should qualify for the tax credits has rankled some lawmakers. Senate Energy and Natural Resources Committee chairman Joe Manchin (D-West Virginia) has balked at a separate rule by Treasury that he says sidestepped new restrictions — set to apply on 1 January 2023 — that the tax credit should only go to vehicles that have batteries and critical minerals sourced from the US or its free trade partners.

"They avoided that and they cherry-picked it, and they're still paying $7,500," Manchin said at a hearing Thursday. "We're pushing EVs to the point that we're going to continue to rely on China for the supply of these batteries."

Treasury, through guidance in December, retained the tax credit for electric vehicles until it puts rules in place that determine which vehicles should qualify. Manchin has introduced legislation that would suspend the tax credit until Treasury finalizes those rules.

By Chris Knight