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Impact of Stricter EV Tax Credit Rules on Vehicle Models The Electric Shockwave: Reducing the Pool of Qualifying Models for the Full Tax Credit

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The dawn of January 1, 2024, brought a seismic shift in the landscape of electric vehicles eligible for the $7,500 consumer tax credit in the U.S. The number of EV models qualifying for this credit dwindled to a mere 13 as a result of stricter regulations regarding the sourcing of parts from Chinese suppliers. In stark contrast, under the former criteria, the number of EV models that qualified for the tax credit on December 31 stood at a robust 25.

The new regulations specifically bar vehicles from benefiting from the tax credit if they use battery components manufactured by Chinese firms. Looking ahead, Ashley Schapitl, a spokeswoman for the Treasury Department, expressed that the government will maintain close collaboration with the automobile industry on the implications of the new restrictions. She noted, β€œAutomakers are adjusting their supply chains to ensure buyers continue to be eligible for the new clean vehicle credit, partnering with allies and bringing jobs and investment back to the United States.”

By 2025, the restrictions will extend to include suppliers of essential raw materials for batteries, such as nickel and lithium, placing additional pressure on automakers to meet the criteria for EV tax credits.

Despite the contraction in the number of qualifying models, certain vehicles still retain eligibility for the full $7,500 EV tax credit. These include variations of Tesla’s (NASDAQ:TSLA) Model Y, Rivian Automotive’s (NASDAQ:RIVN) R1T pickup, Stellantis N.V.’s (STLA) Jeep Wrangler 4xe, General Motors’ (GM) Chevrolet Bolt, and Ford Motor’s (F) F-150 Lightning pickup truck. Notably, the Nissan Leaf (OTCPK:NSANY) and Tesla (TSLA) Cybertruck dropped off the list as the clock struck midnight but still qualify for a $3,750 tax credit, alongside a long list of other EV models.

Sector Snapshot: As 2024 commences, Tesla (TSLA) holds a market capitalization surpassing the combined valuations of Toyota Motor (TM), Stellantis (TSLA), Ferrari (RACE), Honda (HMC), General Motors (GM), and Ford Motor (F). This sets the stage for a spirited bull vs. bear debate that is likely to persist throughout the year. Apart from ramping up Gigafactory production, potential catalysts for the Austin-based company in the new year include the unveiling of its next model, advancements in FSD, approval for manufacturing in India, a notable margin reversion, Cybertruck feedback, and an AI Day event that could showcase the potential of the Optimus robot and Tesla’s overall AI growth story.

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