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With changing rules, some electric vehicles will stop qualifying for a tax credit

SCOTT SIMON, HOST:

If you've been considering an electric car, you want to pay attention to what the Treasury Department is doing. It unveiled new guidance on Friday about electric vehicle batteries. And as a result, some vehicles are likely to lose their federal tax credit. NPR's Camila Domonoske joins us.

Thanks so much for being with us.

CAMILA DOMONOSKE, BYLINE: Yeah. Thanks for having me.

SIMON: Basically, what happened this week?

DOMONOSKE: Well, basically, if you take these EV tax credits, they're worth up to $7,500 per qualifying vehicle. And starting on April 18, what it means to be a qualifying vehicle will change. You have to meet all the existing requirements, and a lot of the stuff that goes into that vehicle's battery has to come from the U.S. or North America or a trade partner. This is a requirement that is supposed to bring jobs to the United States and reduce reliance on China for the supply chain.

SIMON: I'm not sure I understand how the Treasury Department figures into this.

DOMONOSKE: Yeah. It's kind of curious. This was a law that was passed by Congress last year, but it is a tax credit. So the IRS is involved in figuring out how it actually works. And it is complicated. I'm actually going to use a metaphor here, if you'll humor me. If you had a bag of dried rice and I asked you, did 50% of that rice come from the United States or not? - like, you might be confused by why I was asking that question, but you could figure out how to answer it, right? What if you had a burrito and I asked you, Scott Simon, is half of that burrito from the United States? - you would have a lot of follow up questions about, like, how you consider where the beans were grown...

SIMON: Right. Yeah.

DOMONOSKE: ...Versus where they were boiled. And then you have the salsa. That has a lot of different ingredients. Every ingredient has its own pathway. So even figuring out how you do the math is hard. And so what the Treasury Department just dropped is basically 60 pages of instructions on how to calculate where a burrito is from. And now companies need to actually apply that and break down their burritos. And the burritos in this extended analogy are the batteries.

SIMON: For the record, I would pat my stomach and say, the burrito is here now, but let's continue with this extended metaphor. After all the analysis, how many cars will still get the tax credit?

DOMONOSKE: The Treasury Department says that it doesn't know. I asked John Bozella. He's the head of the trade group for auto manufacturers. He's the guy who would know. And he said...

JOHN BOZZELLA: So the short answer is we're not entirely sure.

DOMONOSKE: Now, since I spoke to him, we've gotten some information. GM says the Bolt will get some credit. Tesla says the Model 3 will see its credit reduced. Looks like we're going to be hearing company by company on this. We should know the full list on April 18, exactly when this goes into effect. So quick note here - if you're buying a used EV or you're leasing an EV, you don't have to worry about this at all. But if you are in the market for a new EV and you know you would qualify for the credit today, you might not in a few weeks. So maybe don't dawdle.

SIMON: Camila, why is this happening now?

DOMONOSKE: These tax credits have been changed to try to do two things at once - sell more electric vehicles for the fight against climate change, but also get more mines and processing plants and battery factories built in the United States for jobs and to reduce dependency on China, like I said earlier. And those two goals are in direct tension. The easier you make it to qualify, the more cars you sell, the harder you make it, the more you boost the supply chain.

And so these battery sourcing rules are right at the heart of this tension, right? They're designed to build up the supply chain. But the Treasury Department has added some flexibility because they want to also sell EVs. It's a tug of war. And this is not the end. There's going to be more debates over these tax credits in the months and the years ahead.

SIMON: NPR's Camila Domonoske.

Thanks so much for being with us.

DOMONOSKE: Thank you. Transcript provided by NPR, Copyright NPR.

Scott Simon is one of America's most admired writers and broadcasters. He is the host of Weekend Edition Saturday and is one of the hosts of NPR's morning news podcast Up First. He has reported from all fifty states, five continents, and ten wars, from El Salvador to Sarajevo to Afghanistan and Iraq. His books have chronicled character and characters, in war and peace, sports and art, tragedy and comedy.
Camila Flamiano Domonoske covers cars, energy and the future of mobility for NPR's Business Desk.