The New EV Credit Math: Critical Minerals, Battery Components, and the April 18 Squeeze

How the credit is now structured

The Inflation Reduction Act (IRA), Pub. L. 117-169, rewrote the § 30D clean vehicle credit in § 13401. The maximum credit remains $7,500 per vehicle, but it is now built from two independent $3,750 halves.

One half is earned by meeting the critical minerals requirement. The other is earned by meeting the battery components requirement. A vehicle that satisfies both earns the full $7,500. A vehicle that satisfies one earns $3,750. A vehicle that satisfies neither — but is otherwise eligible — earns nothing on these tests.

This is the structural shift. The credit is no longer a single threshold to clear. It is two sourcing tests, each carrying real money, each capable of being failed independently.

What the two tests require in 2023

On March 31, 2023, Treasury and the IRS issued proposed regulations (REG-120080-22), published in the Federal Register on April 17, 2023. Those regulations put detail behind the statutory sourcing tests and set the percentages that apply for 2023.

For the critical minerals half, at least 40 percent of the value of the applicable critical minerals must be extracted or processed in the United States or a country with which the United States has a free trade agreement, or recycled in North America.

For the battery components half, at least 50 percent of the value of the battery components must be manufactured or assembled in North America.

Both percentages step up in later years — the sourcing bar rises over time — but for 2023 the figures are 40 percent and 50 percent.

The date that changed everything: April 18, 2023

The single most important fact for buyers and dealers is timing. The sourcing requirements apply to vehicles placed in service on or after April 18, 2023 — the day after the proposed regulations were published in the Federal Register.

Before that date, from January 1 through April 17, 2023, the credit ran on the prior transitional rule, under which the amount was tied to battery capacity rather than sourcing and could reach $7,500 on that basis. After April 18, the sourcing split governs.

The practical consequence was immediate. When the sourcing tests took effect, the list of vehicles qualifying for the full $7,500 contracted sharply. Many models dropped to $3,750, and some dropped off entirely. A vehicle eligible for the full credit on April 17 could be eligible for only half — or none — of it on April 18.

The eligibility limits that were already in place

The sourcing tests do not operate in isolation. Several other limits applied throughout 2023, and a buyer must clear all of them.

• Final assembly in North America. This requirement took effect on the IRA's enactment date, August 16, 2022, and continued to apply.
• MSRP caps. The manufacturer's suggested retail price may not exceed $80,000 for vans, sport utility vehicles, and pickup trucks, or $55,000 for all other vehicles.
• Income limits. The credit phases out above modified adjusted gross income of $300,000 for joint filers, $225,000 for heads of household, and $150,000 for all other filers, measured using the lesser of the current or prior year.

A vehicle can pass both sourcing tests and still yield no credit if the buyer's income exceeds the cap or the price exceeds the MSRP limit. The credit is a stack of conditions, and the weakest link controls.

A separate credit for used vehicles

The IRA also created a distinct credit for previously owned clean vehicles under § 25E, effective January 1, 2023. It equals the lesser of $4,000 or 30 percent of the sale price, and the vehicle's sale price must be $25,000 or less. It is a separate provision with its own rules, not a version of the new-vehicle credit, and buyers shopping the used market should evaluate it on its own terms.

What this means in practice

For a buyer, eligibility must be confirmed for the specific vehicle on the date it is placed in service, not from a list seen weeks earlier. The IRS directs taxpayers to fueleconomy.gov to check a model's status, and that status can change. For a dealer, the credit has become a moving target that needs to be re-verified as model sourcing and the qualified-vehicle list are updated. The defensible practice is to document the vehicle's qualifying status and the buyer's income eligibility contemporaneously, because the support for the credit lives in the facts as they stood on the day of purchase.

Key takeaways

• Beginning April 18, 2023, the § 30D credit's $7,500 is split into two $3,750 halves — one for the critical minerals requirement and one for the battery components requirement.
• For 2023, a vehicle needs at least 40 percent qualifying critical minerals and at least 50 percent North American battery components to earn the full credit.
• The sourcing rules apply only to vehicles placed in service on or after April 18, 2023; vehicles placed in service January 1 through April 17, 2023 used the prior battery-capacity rule.
• Separate limits also apply throughout 2023: North American final assembly, MSRP caps of $80,000 and $55,000, and income limits of $300,000, $225,000, and $150,000.
• A distinct used clean vehicle credit under § 25E — the lesser of $4,000 or 30 percent of sale price, on vehicles priced $25,000 or under — also took effect January 1, 2023.

Frequently asked questions

Why did some vehicles lose the full credit in the middle of 2023?

Because the critical minerals and battery components sourcing requirements took effect for vehicles placed in service on or after April 18, 2023. Many models that qualified for the full $7,500 under the earlier transitional rule met only one sourcing test, or neither, once the new rules applied.

How is the $7,500 credit divided?

It is two independent halves of $3,750 each — one for meeting the critical minerals requirement and one for the battery components requirement. A vehicle can qualify for one, both, or neither.

Do I qualify if my income is high?

The credit phases out above modified adjusted gross income of $300,000 for joint filers, $225,000 for heads of household, and $150,000 for other filers, using the lesser of the current or prior year. Above those thresholds, the new clean vehicle credit is not available regardless of the vehicle.

Is there a credit for buying a used electric vehicle?

Yes. A separate credit under § 25E, effective January 1, 2023, equals the lesser of $4,000 or 30 percent of the sale price for qualifying previously owned clean vehicles priced at $25,000 or less.