U.S. Treasury Changes Definition of “SUV” in Boost for Tesla, GM, and Other Car Manufacturers
The U.S. Treasury announced Friday its plan to change its definition of an “SUV” in an effort to make electric vehicles from Tesla, General Motors and other automakers eligible for up to $7,500 in federal tax credits at higher prices.
Elon Musk, the CEO of Tesla, publicly criticized the previous standards on Twitter, while automakers like GM and Ford Motor lobbied to revise the standards before the final rules were announced next month. These actions led to the decision.
For vehicles like the Tesla Model Y, Cadillac Lyriq, Ford Mustang Mach-E, and Volkswagen ID.4, the change raises the retail price cap from $55,000 to $80,000. Previously, some or all models of these vehicles did not qualify because they did not weigh enough to be classified as an SUV by the Treasury’s standards.
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 the choice will affect the up to 20% price reductions Tesla announced last month, which qualified the Model Y for the credits. Tesla didn’t respond to a request for comment right away.
Despite rising component costs for the cars, Wall Street welcomed Tesla’s price cuts but was also concerned that they would spark a pricing war for electric vehicles and put pressure on the margins of other automakers. When compared to conventional automakers, Tesla has experienced a substantially larger profit margin on its electric vehicles.
Despite the company’s total EV business not currently being profitable, including certain Mach-E models selling at a loss for the company, Ford announced Monday that it would lower the price of the Mustang Mach-E by up to $5,900 to better compete with Tesla’s Model Y.
According to a statement by Ford, officials “sincerely appreciate their consideration and hard work” by the Treasury.
GM also thanked the Treasury and praised the upcoming changes: “The alignment on classification will provide the needed clarity to consumers and dealers, as well as regulators and manufacturers.”
The majority of American automakers’ lobbying organization, the Alliance for Automotive Innovation, applauded the choice as well.