AUTO

Ford and Tesla Announce Models Losing EV Tax Credit Status

December 14, 2023

The new 2024 tax credit rules include restrictions on batteries from China and other Foreign Entities of Concern, affecting EV purchases from companies like Tesla and Ford.
The Mustang Mach-E and Tesla Model 3 RWD use LFP batteries from Chinese company CATL.
The Ford F-150 Lightning uses batteries made in the United States.

If you’re in the market for a Ford Mustang Mach-E or a Tesla, the time to buy one is now. Earlier in the week, the two automakers announced that their top-selling electric vehicle will be losing tax credit status when the calendar resets on January 1, 2024.

Restriction on Batteries Made in China

In 2024, new battery sourcing restrictions take effect on January 1. The new restrictions are designed to encourage EV manufacturers to turn to home-grown battery sources. The Mustang Mach-E might be assembled in the United States, but its batteries are built in China. The same goes for the Tesla Model 3.

The Mach-E has LFP batteries from the Chinese battery giant, CATL. The Tesla Model 3 Rear-Wheel Drive and Long Range also use lithium-ion phosphate batteries from CATL. Other Tesla models have battery packs made at the Gigafactory Nevada.

The new rules within the Inflation Reduction Act are based on the “Foreign Entities of Concern,” and they are heavily detailed. The issue lies in sourcing materials from countries like China, North Korea, and Russia. China manufactures approximately 70 percent of battery cells for everything from electric vehicles to smartphones.

2023 Tax Credit Opportunities

_{Ford Mustang Mach-E, image care of Ford}

Currently, the Mustang Mach-E qualifies for $3,750 in tax credits while the Model 3 Rear-Wheel Drive and Long Range models qualify for the full $7,500. When the calendar flips to 2024, the Mach-E will lose tax credit eligibility, while the Tesla Model 3 will qualify for $3,750.

It’s safe to expect EV tax credit status will also change for the 2024 Nissan LEAF and 2024 Volkswagen ID.4. The ID.4 is produced in Chattanooga, TN, while the LEAF is manufactured in Smyrna, TN.

Tax Credit Payment Changes in 2024

In 2024, tax credit payment timing will change. Currently, drivers who purchase an EV wait until they file their taxes to receive the credit. In 2024, car shoppers will receive the credit at the time of purchase. With the status changing for several popular and affordable models, buying before the new year arrives will guarantee a larger tax credit.

Ford will continue to offer 2023 Mach-E and F-150 Lightning sales and lease incentives throughout the year. The automaker has not announced how the tax credit restrictions will affect the first EV full-size pickup truck. The F-150 Lightning battery packs come from a joint venture with SK Innovation in Georgia.

Manufacturing Batteries in the United States

The tax credit problem could be solved by Ford changing its battery sourcing. In February 2023, the company announced a new battery facility in Marshall, Michigan. If and when BlueOval Battery Park Michigan opens, the $3.5 billion investment could employ 2,500 people by 2026.

General Motors EVs should continue to qualify for tax credit status. The legacy automaker works with LG Energy to build Ultium Cells. Currently, the joint venture builds Ultium Cells at a massive plant in Warren, Ohio, and the team is building facilities in Michigan and Tennessee. GM and Samsung SDI are investing jointly in a Nevada lithium mine, and the automaker works with Mitra Chem for battery chemistry research and development.