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It’s a new year, and these are now the only EVs that get a tax credit

lease instead of buy —

Strict rules about battery components from China make most plug-ins ineligible.

concept of ev tax credit

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It’s a new year, and while few of us still have the headache of needing to remember to write the new year on checks, 2024 brings a new annoyance of sorts. As of yesterday, tough new US Treasury Department rules concerning the sourcing of electric vehicle batteries went into effect; as a result, most of the battery and plug-in hybrid EVs that were eligible for the Internal Revenue Service’s clean vehicle tax credit until Sunday have now lost that eligibility.

Under the federal government’s previous program to incentivize the adoption of plug-in vehicles, it offered a tax credit, up to $7,500, based on the battery capacity of a BEV or PHEV, and once a car maker sold more than 200,000 plug-in vehicles, it lost eligibility for the tax credit—Only Tesla and General Motors reached this threshold.

Changes came as part of the Inflation Reduction Act of 2022 and went into effect at the start of 2023. Thanks to heavy industry lobbying, credits linked to union-made EVs went by the wayside, with US Senator Joe Manchin acting as point man for companies like Toyota that sought to slow down the EV transition.

As we’ve detailed in the past, the new rules allow for a tax credit of up to $7,500 for the purchase of a new EV. But there are plenty of conditions. Final assembly must take place in North America. There are income caps for the buyer and a price cap for the vehicle—no more than $55,000 for a sedan or $80,000 for an SUV, truck, or minivan. Half of the tax credit is tied to a certain amount of domestically refined or processed minerals in the battery pack, the other half to a certain value of the pack having been assembled domestically.

While that includes countries that have free trade agreements with the United States, it significantly limited the number of new EVs that were eligible for the tax credit. (However, the IRS chose to read the law in such a way as to still allow the full $7,500 tax credit for clean vehicles that were leased, even if not assembled in North America.)

The list of eligible cars changed throughout the year as the rules were implemented in stages, and as automakers refined their supply chains as required. But toward the end of 2023, the Treasury published another new guideline. Now, any car with a battery that contains material from or made by a “foreign entity of concern”—which means Russia, Iran, North Korea, or China—cannot be eligible for the tax credit.

While the first three nations on that list are not particularly far down the road of EV battery making, the same isn’t true for China, which dominates the field, particularly in terms of processing the critical minerals used in lithium-ion batteries. The FEOC rule also applies to batteries made by Chinese-owned companies even if the cells are produced here in the US.

Consequently, the list of BEVs and PHEVs that are still eligible for the new clean vehicle tax credit now looks rather meagre. The following clean vehicles still qualify for the full $7,500, although we should note that the first two on the list (the Chevrolet Bolts) have ceased production now:

  • 2022-2023 Chevrolet Bolt EV
  • 2022-2023 Chevrolet Bolt EUV
  • 2022-2024 Chrysler Pacifica PHEV
  • 2022-2024 Ford F-150 Lightning extended range battery
  • 2022-2024 Ford F-150 Lightning standard range battery
  • 2023-2024 Tesla Model 3 Performance
  • 2023-2024 Tesla Model X Long Rage
  • 2023-2024 Tesla Model Y All-Wheel Drive
  • 2023-2024 Tesla Model Y Performance
  • 2023-2024 Tesla Model Y Rear-Wheel Drive

Additionally, the following vehicles qualify for a $3,750 tax credit:

  • 2022-2024 Ford Escape Plug-In Hybrid
  • 2022-2024 Jeep Grand Cherokee PHEV 4xe
  • 2022-2024 Jeep Wrangler PHEV 4xe
  • 2022-2024 Lincoln Corsair Grand Touring
  • 2023-2024 Rivian R1S Dual Large
  • 2023-2024 Rivian R1S Quad Large
  • 2023-2024 Rivian R1T Dual Large
  • 2023-2024 Rivian R1T Dual Max
  • 2023-2024 Rivian R1T Quad Large

But there is one bright piece of news concerning the clean vehicle tax credit in 2024. From January 1, dealers are now able to pass the entire credit on to the buyer at the point of purchase. This applies to both new and used EVs, even in cases where the buyer may not have a large enough tax liability at the end of the year to claim the full credit the old-fashioned way.

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Here’s how the EPA calculates how far an EV can go on a full charge

Here’s how the EPA calculates how far an EV can go on a full charge

Aurich Lawson | Getty Images

How does the US Environmental Protection Agency decide how far an electric vehicle can go on a single charge? The simple explanation is that an EV is driven until the battery runs flat, providing the number that goes on the window sticker. In practice, it’s a lot more complicated than that, with varying test cycles, real-world simulations, and more variables than a book of Mad Libs, all in an effort to give you a number that you can count on to be consistent and comparable with other vehicles on the road.

The start of EPA mileage testing

The EPA started testing vehicle fuel economy in 1971, and that initial testing still plays a major role in how modern cars are measured.

The year before, President Richard Nixon signed the National Environmental Policy Act of 1969 (followed by the Clean Air Act of 1970) and established the EPA with a mandate that included lowering motor vehicle emissions. Part of the EPA’s plan to reduce emissions was to let buyers know just how much fuel a car would use so they could cross-shop cars effectively.

Testing started with a route called the Federal Test Procedure. The EPA adopted an 11-mile (18-km) route that was originally done on real roads in Los Angeles. The route had an average speed of 21 miles per hour (34 km/h) and a top speed of 56 mph (90 km/h). Tailpipe emissions were measured, fuel economy was calculated, and the “city” fuel economy rating was born.

By the time the 10-mile (16-km) Highway Fuel Economy Test was added in 1974, the tests were performed in a lab on a dynamometer. Running tests on the dyno made them more consistent and easier to repeat, though it wasn’t perfect.

Small changes and tweaks were made over the years, with the biggest change announced in 2005. That year, the EPA announced changes to the test to meet new highway speeds, account for heating and air conditioning use, and make the test more relevant to real-world driving. Drivers weren’t able to hit the published numbers, and the EPA wanted to fix that. The system was introduced for the 2008 model year and is largely the one we use today.

Modern range testing

Today, automakers have two different test options for EVs. The automaker can decide that it wants to perform a “single cycle” test. On that test, the car drives the EPA city cycle over and over again until the charge runs out, then does the same on the highway cycle, starting with a full charge. The process is repeated for reliability. The alternative is that the automaker can perform a multi-cycle test that has completed four city cycles, two highway cycles, and two constant speed cycles.

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The test cycles

The city cycle

The EPA’s Urban Dynamometer Driving Schedule is the official “city cycle” test loop. It is a complicated graph of time, vehicle speed, and allowable acceleration. The total test time is 1,369 seconds, the distance simulated is 7.45 miles (12 km), and the average speed is 19.59 mph (32.11 km/h). As with all of the tests, the exact speed required at each second of the test is laid out in a spreadsheet.

The highest speed reached on the test is 56.7 mph (91.25 km/h), and there are several periods where the vehicle sits stationary. Stationary seconds of the test made more sense when it was designed to measure a gas vehicle’s idle emissions and consumption, but it does still have some relevance today when it comes to climate control use and energy required to accelerate the vehicle.

The highway cycle

For higher speeds, vehicles complete the Highway Fuel Economy Driving Schedule (HFEDS). This test has a top speed of 59.9 mph (96.4 km/h) and an average of 48.3 mph (77.73 km/h), and it takes 765 seconds to complete.

Only the UDDS and HFEDS tests are required to certify an EV. But a top speed of 59.9 mph is a much lower highway speed than most drivers will experience.

Driving more quickly or using climate control can greatly impact range. More tests were introduced to help give a more realistic range, and they’re part of the 5-cycle test covered below.

Here’s how the EPA calculates how far an EV can go on a full charge Read More »