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Tesla, General Motors get boost from EV SUV tax credit change

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A Tesla Model Y on display inside a Tesla store on the Westfield Culver City shopping center in Culver City, California, U.S., on Thursday, April 14, 2022.

Bing Guan | Bloomberg | Getty Images

DETROIT – The U.S. Treasury said Friday it’s changing its definition of an “SUV” to make more electric vehicles from Tesla, General Motors and other automakers eligible for as much as $7,500 federal tax credits at higher prices.

The choice follows Tesla CEO Elon Musk publicly criticizing the previous standards on Twitter in addition to automakers similar to GM and Ford Motor lobbying to vary the rules ahead of ultimate rules being announced next month.

The change raises the retail price cap to $80,000 from $55,000 for vehicles similar to the Tesla Model Y, Cadillac Lyriq, Ford Mustang Mach-E and Volkswagen’s ID.4. Previously some or all models of those vehicles didn’t qualify because they didn’t weigh enough to be considered an SUV by the Treasury’s standards.

The credits are a part of the Biden administration’s $437 billion Inflation Reduction Act, which was approved in August. Under the bill, SUVs might be priced at as much as $80,000 to qualify for EV tax credits, while cars, sedans and wagons need to be priced at or under $55,000.

The Treasury didn’t immediately reply to a request for added comment regarding the changes.

It’s unclear how the choice will impact as much as 20% pricing cuts announced by Tesla last month that made the Model Y eligible for the credits. Tesla didn’t immediately respond for comment.

Wall Street applauded Tesla’s price cuts but additionally was concerned that they might start an EV pricing war and pressure margins of other automakers, despite rising commodity costs for the vehicles. Tesla has enjoyed significantly higher profit margin on its EVs in comparison with traditional automakers.

Ford said Monday it could cut pricing of its Mustang Mach-E by as much as $5,900 to raised compete with Tesla’s Model Y. That is despite the corporate’s overall EV business not currently being profitable, including some Mach-E models selling at a loss for the corporate.

Ford didn’t immediately respond for comment on the brand new federal guidelines.

GM, in an emailed statement, thanked the Treasury and hailed the changes: “The alignment on classification will provide the needed clarity to consumers and dealers, in addition to regulators and manufacturers.”

The Alliance for Automotive Innovation, a lobbying group for many automakers operating within the U.S., also commended the choice.

–CNBC’s Chelsey Cox contributed to this text.

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