Electric cars classified as small sport utility vehicles such as the Ford Mustang Mach-E and Hyundai Ioniq 5 with a sticker price of up to $80,000 now qualify for the full federal EV tax credit, the U.S. Treasury Department said Friday in a statement. Until the clarification on electric vehicle classifications, the price cap for those vehicles to qualify for the credit was $55,000.
The change to the vehicle classification standard should clear up confusion for electric car shoppers. The price threshold effectively made some trims of the same car qualify for the credit, while higher trims of the same car did not.
“This change will allow crossover vehicles that share similar features to be treated consistently,” the Treasury said in its statement.
The classification based on the EPA Fuel Economy Labeling Standard lets consumers see on vehicle Monroney stickers and when researching cars on fueleconomy.gov what EV tax credit is available and at what price cap.
Ford Mustang Mach-E and Tesla Model Y example for EPA class
To apply for the updated $7,500 federal EV tax credit passed under the Inflation Reduction Act, a vehicle’s final assembly must have been completed in North America, and it cannot exceed a manufacturer suggested retail price (MSRP) of $80,000 for vans, sport utility vehicles, and trucks, or $55,000 for “other vehicles.” MSRP does not include the mandatory destination fee that has ballooned in recent years.
The confusion with the IRA’s guidance up until now was that “small sport utility vehicles”—or other SUVs—with a gross vehicle weight of under 6,000 pounds were classified as cars or “other vehicles.” That $55,000 price cap effectively split the credit on some popular electric crossovers so base trim models might not qualify for the credit, while mid- and top trim models would.
The most recent example was the 2023 Ford Mustang Mach-E, which on Monday received a price cut of great variance because of the $55,000 threshold.
The base Select with the Standard Range 70-kwh battery pack and RWD had a price drop of $900 to $45,995 (excluding the $1,500 destination fee), and the dual-motor model only had a $600 price cut to $48,995.
The popular Premium trim with RWD cost $50,995, while the Premium AWD cost $53,995, narrowly getting under the price cap restriction thanks in part to price cuts of up to $3,980.
The California Route 1 ($57,995) and GT ($63,995) Extended Range models exceeded the cap, and had the largest price cuts of up to $5,900.
Under the new guidance, every Mustang Mach-E qualifies for the full $7,500 EV tax credit because they cost less than $80,000. It remains to be seen how Ford and other automakers will tweak pricing structures based on the latest update.
Most electric crossovers, including the Nissan Ariya, Volkswagen ID.4, Toyota bZ4X, Kia EV6, and Hyundai Ioniq 5 have a price range between about $40,000 and $60,000, as well as a gross vehicle weight of less than 6,000 pounds. This applies to the classification of “small pickup trucks” as well.
The change applies to owners who took delivery of a qualifying EV from the beginning of the year. Further clarity on materials sourcing and other changes to the IRA will be disclosed in March.
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