EV Tax Credits Expanded by Biden Administration to Fuel Growth for Tesla, Cadillac, and Other Automakers

The US Treasury announced a change to its definition of an “SUV” on Friday, aimed at making a greater number of electric vehicles from automakers such as Tesla, General Motors, and others eligible for federal tax credits of up to $7,500. The change raises the retail price cap from $55,000 to $80,000 for vehicles such as the Tesla Model Y, Cadillac Lyriq, Ford Mustang Mach-E, and Volkswagen’s ID.4. This revision comes after Tesla CEO Elon Musk publicly criticized the previous standards on Twitter and lobbying by automakers such as GM and Ford Motor.

Previously, some models of these vehicles did not qualify for tax credits due to their insufficient weight to be considered an SUV by the Treasury’s standards. The tax credits are a part of the Biden administration’s $437 billion Inflation Reduction Act, which was approved in August. Under the act, SUVs can be priced at up to $80,000 to qualify for EV tax credits, while cars, sedans, and wagons must be priced at or under $55,000.

It is unclear how this decision will impact the up to 20% price cuts announced by Tesla last month, which made the Model Y eligible for tax credits. Tesla did not immediately respond for comment. The Wall Street responded positively to Tesla’s price reductions but also expressed concerns about the potential for an EV pricing war, which could pressure margins for other automakers, despite rising commodity costs for EVs.

Tesla has consistently reported significantly higher profit margins on its electric vehicles compared to traditional automakers. Ford announced plans to cut pricing for its Mustang Mach-E by up to $5,900 to better compete with Tesla’s Model Y, despite the fact that its overall EV business is not yet profitable, including some Mach-E models selling at a loss.

Ford and GM both expressed gratitude for the Treasury’s decision, with GM stating that the “alignment on classification will provide the needed clarity to consumers and dealers, as well as regulators and manufacturers.” The Alliance for Automotive Innovation, a lobbying group representing most automakers operating in the US, also commended the Treasury’s decision.