In order to make more electric vehicles from Tesla, General Motors, and other automakers eligible for up to $7,500 in federal tax credits at higher costs, the U.S. Treasury announced Friday that it is revising its definition of a “SUV.”
Elon Musk, the CEO of Tesla, publicly criticized the previous criteria 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.
The change raises the retail price cap to $80,000 from $55,000 for vehicles such as the Tesla Model Y, Cadillac Lyriq, Ford Mustang Mach-E and Volkswagen’s ID.4. Previously, some or all of these vehicle types did not meet the requirements because they did not weigh enough to meet the Treasury’s definition of an SUV.
The credits are part of the Biden administration’s $437 billion Inflation Reduction Act, which was approved in August. Under the bill, SUVs can be priced at up to $80,000 to qualify for EV tax credits, while cars, sedans and wagons have to be priced at or under $55,000.
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. Tesla has enjoyed significantly higher profit margin on its EVs compared with traditional automakers.
Ford said Monday it would cut pricing of its Mustang Mach-E by up to $5,900 to better compete with Tesla’s Model Y. That’s despite the company’s overall EV business not currently being profitable, including some Mach-E models selling at a loss for the company.
Ford, in an emailed statement, said Friday officials “sincerely appreciate their consideration and hard work” by the Treasury.
GM also thanked the Treasury and hailed the 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.
