Tesla Stock Is Up as IRS Updates EV Tax-Credit Rules. More News Is Coming.

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The IRS has updated the rules on what electric vehicles qualify for purchase tax credits. Shares of Tesla and other auto makers are up, although investors still don’t know all they need to.

It isn’t clear what cars qualify for what credits. “What we need here is a simple list of qualifying vehicles,” says accounting expert Bob Willens.

According to guidance the Treasury Department provided Friday, an EV must be assembled in North America to qualify for a full credit. That hasn’t changed, but requirements regarding the sourcing of critical minerals “and/or” battery components were added.

The full credit remains $7,500. Half is dependent on a vehicle meeting rules governing battery materials, while the other half is based on requirements for battery components.

To qualify for the materials portion of the credit, the share of critical minerals “extracted or processed in the United States, or in any country with which the United States has a free trade agreement in effect, or…recycled in North America” must be above a certain level. The percentage to pass muster begins at 40% in 2023 and increases 10 percentage points a year to 80%, says Willens.

Calculating the 40% won’t be a trivial matter.

Lithium
,
for instance, is essential for lithium ion batteries. Lithium raw materials are extracted mainly in Australia and Chile, two countries that meet the government’s requirements. But more than half of lithium processing is done in China, which isn’t listed in the Internal Revenue Service’s guidance.

Batteries also can’t contain critical materials sourced from a foreign entity of concern. That includes China, Iran, North Korea, and Russia. That requirement appears to be going into effect after Dec. 31, 2024.

To qualify for the battery component portion, a certain share of parts must be manufactured or assembled in North America. The number for 2023 is 50% and wll rise by 10 percentage points a year till it reaches 100%.

The new rules go into effect on April 18, when the IRS will publish a list saying which models will qualify for what credits. That is the most important information for car buyers and investors.

General Motors (ticker: GM) said it expects “a number of our Ultium-based EVs, including the Cadillac LYRIQ and additional EVs launching this year like the Chevrolet Equinox EV SUV and Blazer EV SUV, to qualify for the full $7,500 credit in 2023.”

Ultium is the name GM gave to its battery technology platform.

GM also expects the Chevy Bolt to qualify for some level of credit. Tesla (TSLA) and

Ford Motor

(F) didn’t immediately respond to requests for comment about the guidance.

In the coming couple of weeks auto makers will be submitting data about batteries and battery materials to the IRS, which will  post which vehicles get what credits on FuelEconomy.gov.

For now, car buyers have a few more weeks to ensure they get the $7,500 credit before the new list is out. The existing requirements on personal income and vehicle prices to qualify aren’t changing.

Tesla stock rose 6.2% Friday. Investors appear to believe that the updated guidance will preserve most of the credits for most Tesla vehicles. The

S&P 500
and

Nasdaq Composite
rose 1.4% and 1.7%, respectively.

Ford Motor

and

General Motors

shares gained 2.5% and 1.9%, respectively.

Rivian Automotive

(RIVN) shares rallied 7.5%.

Write to Al Root at [email protected]