Treasury Department expands definition of SUVs eligible for electric vehicle tax credit

The Biden administration will expand eligibility for an Inflation Reduction Act-enabled tax cut for electric vehicles, the Treasury Department announced Friday.

The department has updated the classification standards used to determine eligibility, expanding the definition of an SUV. The $7,500 tax credit applies to SUVs costing up to $80,000, but there is no such benefit for passenger cars more expensive than $55,000. The update, retroactive to Jan. 1, will use the standard set by the Environmental Protection Agency’s (EPA) fuel economy standards.

“To make it easier for consumers to know which vehicles qualify under the applicable MSRP cap, Treasury is updating the vehicle classification standard to use the consumer-facing EPA Fuel Economy Labeling standard, rather than the EPA CAFE [Corporate Average Fuel Economy] standard,” the department said in a statement Friday. “This change will allow crossover vehicles that share similar features to be treated consistently.”

Under the expanded eligibility, Tesla’s five-seat Model Y, the Volkswagen ID.4 and General Motors’s Cadillac Lyriq will all be allowed under the $80,000 price cap as crossover SUVs.

Companies such as Tesla and GM had previously lobbied for a more expansive eligibility standard to allow their models to qualify. Tesla cut the price of its Model Y vehicle 20 percent in January, which would make it eligible for the tax credit even before the expansion. In January, CEO Elon Musk tweeted that it was “messed up” that the five-seat version of the Model Y was ineligible under the earlier standards. The Hill has reached out to Tesla for clarification on whether the announcement will affect the price cut.

“Tax credits are a proven accelerator of electric vehicle adoption, and we are excited that qualifying customers will be able to take advantage of a $7,500 federal clean vehicle tax credit, including the Spring Hill, Tennessee-built, all-electric Cadillac Lyriq SUV,” a GM spokesperson told The Hill in an email. “We appreciate the Department of Treasury aligning with fueleconomy.gov. The alignment on classification will provide the needed clarity to consumers and dealers, as well as regulators and manufacturers.”