The U.S. Treasury Department said Friday it would change its definition of an “SUV” to produce more electric vehicles from Tesla and General Motors.
Other automakers qualify for federal tax credits of up to $7,500 at higher prices.
Decisions are up to Tesla CEO Elon Musk, along with automakers like GM and Ford Motor Company, who openly criticized the standards of the time on Twitter.
We will work to change the policy before the final rule is published next month.
The change raises the retail price cap for vehicles like the Tesla Model Y, Cadillac Lyriq, Ford Mustang Mach-E, and his ID.4 from Volkswagen from $55,000 to $80,000. Previously, some or all models of these vehicles did not qualify because they were not heavy enough for Treasury standards to consider an SUV.
The credits are a part of the $437 billion Inflation Reduction Act, which was adopted in August during the Biden administration. According to the proposed legislation, SUVs may cost up to $80,000 to be eligible for EV tax credits, but cars, sedans, and wagons must cost $55,000 or less.
It’s unclear how this decision will affect the up to 20% price cuts Tesla announced last month that credited the Model Y. Tesla did not immediately respond to comments.
Wall Street welcomed Tesla’s price cuts but was also concerned that a price war for electric vehicles would begin, squeezing profits for other automakers, despite rising raw material costs. Tesla achieves significantly higher profit margins on electric vehicles compared to traditional automakers.
Ford on Monday said it would cut the price of his Mach E Mustang by up to $5,900 to make it more competitive with Tesla’s Model Y. That includes several Mach-E models that are selling at a loss for the company, even though the company’s entire EV business is not currently profitable.
Ford added in a statement sent via email that Treasury employees’ “sensitivity and hard work” was “sincerely appreciated” by Friday’s authorities.
The revisions were praised by GM, which welcomed the Treasury and said that they would provide consumers, dealers, regulators, and manufacturers the clarity they need.
The majority of American automakers’ lobbying organisation, the Alliance for Automotive Innovation, applauded the choice as well.