Electric Protectionism: New Clean Vehicle Tax Credit Limitations Make EVs Less Accessible for American Consumers in the Name of “America First” Trade Policy

Electric Protectionism: New Clean Vehicle Tax Credit Limitations Make EVs Less Accessible for American Consumers in the Name of “America First” Trade Policy

Dominic Detwiler

In August of 2022, President Biden signed the Inflation Reduction Act (IRA) into law, which the administration claims was part of “the most aggressive climate action in U.S. history”[1] and would move the country forward in the President’s “goal that at least 50 percent of all new passenger cars and light trucks sold in 2030 be zero-emission vehicles.”[2] While other provisions of the IRA make significant steps in reducing greenhouse gas emissions and mitigating climate change,[3] the Clean Vehicle Tax Credit (CVTC) falls short. In addition to likely violating international trade law forbidding discrimination based on foreign origin of imports, the new CVTC requirements limit the eligibility of the tax credit for electric vehicles to the brink of non-existence.[4] Assuming that the provision of tax credits to consumers who purchase electric vehicles increases sales of those vehicles[5] and that it is a worthwhile policy goal to encourage greater EV sales and use in the consumer population, the CVTC fails on all counts.[6]

First, the limitations on the availability of the tax credit very highly limit—if not completely eliminate—eligibility for the credit among consumers looking to purchase an electric vehicle.[7] Under this requirement, to receive the full $7,500 tax credit after January 1, 2023, an electric vehicle must: 1) have a final assembly point in North America (or other country with which the United States has a free trade agreement); 2) at least 50% of the value of its battery components manufactured in North America (increasing to 100% by 2029); and 3) have an MSRP below $80,000 for vans, SUVs, and pickup trucks or $55,000 for other vehicles.[8] While the U.S. Department of the Treasury has delayed the release of specific battery component manufacturing requirements until March,[9] these requirements are expected to greatly limit the number of EV models eligible for the tax credit because in 2022, 56% of all EV batteries were manufactured in China, 26% were manufactured in South Korea, 10% were manufactured in Japan, and 8% were manufactured in the rest of the world (including the United States).[10]

Second, the tax credit and information regarding how to determine eligibility is difficult for the average consumer to access. The new requirements for obtaining the tax credit will make the credit less accessible, as the requirements are highly confusing for consumers, and eligibility often cannot be determined simply by make and model of a vehicle, but will require a specific vehicle identification number (VIN) to determine eligibility.[11] This will require a consumer to identify the specific vehicle they wish to purchase before being able to determine whether the vehicle is eligible for the credit.[12] For example, if a consumer was interested in purchasing Volkswagen’s electric SUV, the ID.4, this information would be insufficient to determine whether the vehicle qualifies for all or part of the tax credit.[13] The consumer would need to use the Department of Energy’s VIN lookup tool to determine whether the specific ID.4 at their local dealership would qualify.[14] This additional barrier to determining eligibility may dissuade potential EV purchasers from buying an EV or from claiming the tax credits to which they are entitled under the IRA.

While the political reasons for the passage of the CVTC are outside of the purview of this post, the similarities between this protectionist policy and those of the Trump Administration are apparent and speak to a broader American attitude toward international trade law which holds trade law in high regard when it comes to protecting American exports and in complete disdain when other countries seek the same protections for their exports.

In short, if your New Year’s resolution was to buy an EV, you almost certainly will not be able to receive the same $7,500 tax credit that you would have qualified for before the IRA was passed.[15] While you would have been best served to make the purchase before the end of 2022, you should absolutely consider making your purchase before the Treasury releases its battery component requirements because those requirements could eliminate any tax credit eligibility your EV purchase may have.[16]


[1] Clean Energy for All, The White House, https://www.whitehouse.gov/cleanenergy/ (last visited Jan. 22, 2023).

[2] The White House, Building a Clean Energy Economy: A Guidebook to The Inflation Reduction Act’s Investments in Clean Energy and Climate Action, 46 (Version 2, Jan. 2023) https://www.whitehouse.gov/wp-content/uploads/2022/12/Inflation-Reduction-Act-Guidebook.pdf.

[3] Sambhav Sankar, The Inflation Reduction Act is the Biggest Climate Investment in History. The Fight Doesn’t Stop Here., Earthjustice (Aug. 19, 2022), https://earthjustice.org/blog/2022-august/inflation-reduction-act-biggest-climate-investment-fight-doesnt-stop.

[4] John Bozzella, What If No EVs Qualify for the EV Tax Credit? It Could Happen., All. for Auto. Innovation (Aug. 5, 2022), https://www.autosinnovate.org/posts/blog/what-if-no-evs-qualify-for-the-ev-tax-credit.

[5] Yan Zhou et al., Plug-In Electric Vehicle Market Penetration and Incentives: A Global Review, 20 Mitigation and Adaptation Strategies for Glob. Change 777, 788 (2015).

[6] Contra Kristin Toussaint, Transitioning to Electric Vehicles Isn’t Enough: Public Transit Use Needs to Double, Fast Co. (Nov. 10, 2021), https://www.fastcompany.com/90695003/transitioning-to-electric-vehicle-isnt-enough-public-transit-use-needs-to-double.

[7] Molly F. Sherlock, Cong. Rsch. Serv., IN11996, Clean Vehicle Tax Credits in The Inflation Reduction Act of 2022 (Aug. 24, 2022).

[8] Id.

[9] Aaron Cole, Feds Delay New EV Tax Credit Guidelines Until March 2023, Drive (Dec. 20, 2022), https://www.thedrive.com/news/feds-delay-new-ev-tax-credit-guidelines-until-march-2023.

[10] Bruno Venditti, The Top 10 EV Battery Manufacturers in 2022, Visual Capitalist (Oct. 5, 2022), https://elements.visualcapitalist.com/the-top-10-ev-battery-manufacturers-in-2022/.

[11] Alternative Fuels Data Center: Electric Vehicles with Final Assembly in North America, U.S. Dep’t of Energy, https://afdc.energy.gov/laws/electric-vehicles-for-tax-credit (last visited Jan. 22, 2023).

[12] Id.

[13] Id.

[14] Id.

[15] Sherlock, supra note 7.

[16] Bozzella, supra note 4.