January 17, 2023 Blog

If It Looks Like an SUV and Drives Like an SUV… It is an SUV (And Should Get the EV Tax Credit)

By John Bozzella

I’m getting asked about the newest Treasury Department guidance for the $7,500 electric vehicle tax credit in the Inflation Reduction Act.

This one relates to how the IRS classifies an EV (pickup truck, van or SUV) for purposes of the tax credit and, in turn, determines whether or not the vehicle is eligible for that credit.

More potential confusion for customers, unfortunately.

In previous posts I’ve warned the major changes to the EV tax credit in 2022 (from an incentive to reduce the upfront cost of an EV to an inducement to move critical mineral and battery supply chains out of China) would mean confusion for customers, dealers and automakers.

That’s because there are a bunch of other requirements to get the credit – tests related to assembly location, the origin of mineral and battery components, the price of the EV and the income of the buyer. These requirements start on different timeframes, apply differently for different manufacturers, and change in the coming years.

OK, back to vehicle classification – i.e. is it a sedan, SUV, minivan, convertible, hatchback, station wagon, pickup, etc.?

One of the criteria to receive the 30D EV tax credit is the MSRP of the vehicle. If the EV has a retail price of $80,000 or less for SUVs, vans or pickup trucks or $55,000 or less for a sedan, the vehicle is credit eligible. Potentially.

For purposes of the credit, the Treasury Department has decided to classify EVs using a definition that is pushing vehicles that consumers consider an SUV (and is actually called an SUV on the government website FuelEconomy.gov) into the $55,000 sedan category.

Like I said, confusion.

Here’s a hypothetical: EV X is manufactured in North America. It’s marketed as an SUV. It has an SUV body, a rear hatch, an elevated driving position and other utility vehicle attributes. It retails for less than $80,000. A customer interested in the vehicle meets the income requirements to qualify.

That vehicle is an SUV and eligible for the tax credit. Right?

Not necessarily. According to FuelEconomy.gov, yes. But under the definition recently adopted by the IRS, no. That’s because these vehicles are being erroneously classified as sedans instead of SUVs for purposes of the tax credit.

Griping from automakers, you say?

As I always say in these posts, consider it from a customer’s POV – say a family comparison shopping between a few electric SUVs (each with a similar MSRP above $55,000) who comes to discover, oops, the IRS actually considers some of the vehicles on their list a sedan and some an SUV. No go on the credit for a growing number of SUVs.

This is important. Utility vehicles and light trucks accounted for almost 70 percent of EV sales in Q3 2022. As battery and supply chains localize and more electric crossover and SUV models come to market, customers (who really like this category of vehicles, by the way) are going to find themselves unable to get the credit. That’s going to be a setback for prospective EV buyers, not to mention our collective goal of 40-50 percent EV sales by 2030.

I’m reminded of the old saying… if it looks like an SUV and drives like an SUV… it is an SUV.

And it should get the EV tax credit.

John Bozzella is president and CEO of Alliance for Automotive Innovation.