In a boost for Ford and Tesla, the Treasury Department is changing tax rules for electric vehicles, making it easier to qualify as an SUV


Is the Ford Mustang Mach-E an SUV? How about the Tesla Model Y? Depending on which branch of the US government you ask, the answer could be yes, no, or it depends.

Now that new EV tax credit rules are in place, that response could mean thousands of dollars for some car buyers and big bucks for automakers’ profits. Under the new rules, car buyers will not be able to claim tax credits for cars costing more than $55,000. However, for SUVs, the sticker price can go as high as $80,000. Previously, the Treasury Department considered the Mustang Mach-E a car, not an SUV, for tax credit purposes. The same applies to the Tesla Model Y, provided it was not equipped with a third row of seats.

However, if you search for electric SUVs on the Environmental Protection Agency’s website, both models will appear in your search, regardless of how many seats they have. The tax rules seemed to defy both common sense and what the EPA said. As such, the US Treasury Department announced on Friday that it would change things up so that the Treasury Department’s definition of an SUV now matches the “consumer-centric” standard that the EPA uses on fuel economy labels and on its website.

Previously, the Treasury Department had relied on vehicle definitions used by the National Highway Traffic Administration to manage corporate average fuel economy regulations. The so-called CAFE definitions of vehicles often differ from what the average American might think based on a vehicle’s shape. Also, according to the CAFE definitions, the same vehicle could be defined as an SUV if equipped with certain options, but as a car without those features.

The Volkswagen ID.4 would qualify under CAFE as an SUV if equipped with all-wheel drive, but as a car if not. Under the standards used by the EPA for its website, these vehicles are SUVs, no matter how equipped.

“This change will allow crossover vehicles with similar characteristics to be treated consistently,” the Treasury Department said in an announcement.

However, not every vehicle that an automaker markets as an SUV will necessarily qualify. The Chevrolet Bolt EUV, for example, retains the $55,000 cap, although GM has called it a crossover SUV version of the Bolt hatchback. The lines separating cars from SUVs are in many cases quite vague, said Chris Harto, senior policy analyst for Consumer Reports.

“In a lot of cases it’s really just hatchbacks and station wagons with a bit better marketing,” he said.

People who bought a vehicle since Jan. 1, 2023 and didn’t qualify for a tax credit under the old rules can now qualify, the Treasury Department said in its announcement. According to Treasury, no vehicles will lose eligibility as a result of this rule change.

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