The US Treasury Department announced today it revised its vehicle classification definitions, which means more EV models will become eligible for up to $7,500 tax credits.
We previously reported how five-seat Tesla Model Y variants, the Cadillac Lyriq and more expensive trim levels of the Ford Mustang Mach-E did not qualify for the incentives because they weren’t classified as SUVs and therefore had an MSRP limit of $55,000 instead of $80,000.
Fortunately for the automakers listed above and the customers interested in buying one of the aforementioned models, the US Treasury has made more EVs eligible for the new tax credits, and the good news is the revised definition will apply retroactively to EV purchases since January 1, 2023.
“Customers who have purchased and placed in service vehicles since January 1, 2023, that qualify under the EPA Fuel Economy Labeling classification standard announced today and who satisfy the other clean vehicle tax credit requirements can claim the credit, including customers with vehicles that did not qualify under the prior EPA CAFE standard.”
The decision is a win for these automakers which had pressed the Biden administration to change the vehicle definitions. As a result, the retail price cap is raised to $80,000 from $55,000 for the Cadillac Lyriq, Tesla’s five-seat Model Y, Ford Mustang Mach-E, and rear-wheel-drive variants of the Volkswagen ID.4.
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Why didn’t the Treasury classify these models as SUVs in the first place? Well, the department initially used Environmental Protection Agency (EPA) CAFE standards to determine whether a vehicle was a car or SUV for EV tax credit purposes.
Now, the Treasury has announced it will use the “consumer-facing EPA Fuel Economy Labeling standard,” adding that “this change will allow crossover vehicles that share similar features to be treated consistently.” The decision was praised by General Motors, which sent the following statement to InsideEVs.
“Tax credits are a proven accelerator of electric vehicle adoption, and we are excited that qualifying customers will be able to take advantage of a $7,500 federal clean vehicle tax credit, including the Spring Hill, Tennessee-built, all-electric Cadillac LYRIQ SUV. We appreciate the Department of Treasury aligning with fueleconomy.gov. The alignment on classification will provide the needed clarity to consumers and dealers, as well as regulators and manufacturers.”
Tesla CEO Elon Musk described the EV tax rules as “messed up” in a tweet last month, referring specifically to the fact the five-seat Model Y was not classified as an SUV while the seven-seat Model Y was. He reportedly raised the issue with White House officials during a meeting last week, according to Reuters.
Alliance for Automotive Innovation CEO John Bozzella said the Treasury’s decision is “very good” as it “clears up some EV tax credit confusion and instantly helps customers shopping … for an electric crossover or SUV.”
You can check out the updated list of qualifying vehicles on the IRS website.
