Enlarge / The Chinese automaker BYD has every other electric vehicle maker worried. (credit: John Keeble/Getty Images)

The United States has won an important battle in its war to keep low-cost Chinese electric vehicles from American car buyers. Today, Reuters reports that the Mexican federal government has responded to pressure from the US and will not offer incentives to Chinese automakers, like BYD, that are looking to establish North American manufacturing operations.

BYD last met with Mexican officials in January, according to Reuters, where it learned that Chinese automakers would not be offered tax breaks or cheap land to build factories.

Until now, Mexico has offered foreign automakers generous subsidies that have made the country a cheap place to build cars . Added to that, the United States-Mexico-Canada Free Trade Agreement also makes Mexico desirable for ease of access to the US market, and Chinese automotive part suppliers have flocked to the country in recent years.

Enlarge / A row of Tesla Model 3s awaits export from the company's factory in Shanghai, China. (credit: Zhang Hengwei/China News Service via Getty Images)

All versions of the Tesla Model 3 sedan now qualify for the full IRS clean vehicle tax credit. Tesla CEO Elon Musk used Twitter to share the news last week, but it has now been confirmed by the federal government on its consumer-facing fueleconomy.gov site. However, given Tesla's lack of a communications department, it's unclear exactly what has changed that allows this electric vehicle to qualify once again.

Until the end of 2022, the IRS offered a tax credit of up to $7,500 for qualifying plug-in vehicles. The size of the credit was based on battery capacity, and there was a provision to sunset the tax credit for a given manufacturer once it sold more than 200,000 plug-in vehicles. As Tesla only sells plug-in vehicles, it was the first to hit this cap , reaching that milestone in the second quarter of 2018. (General Motors was the only other OEM to also pass this milestone; it did so at the end of 2018 .)

All that changed at the start of this year , thanks to the Inflation Reduction Act. Now the tax credit applies to clean vehicles rather than plug-in vehicles, allowing a credit for hydrogen fuel cell EVs as well as plug-in hybrid and battery EVs. And there's no more sunset, and Tesla and GM vehicles are not disqualified due to sales success. As before, it's a tax credit, so the filer needs to have at least as large a tax liability as the credit.

Enlarge (credit: Getty Images)

By now, regular readers probably know that this year saw a major change to the Internal Revenue Service's Clean Vehicle Tax Credit, the consumer-facing incentive that aims to drive electric vehicle adoption here in the US. The tax credit was reformed by last year's Inflation Reduction Act and now places conditions on where a clean vehicle—a battery EV, a plug-in hybrid EV, or a hydrogen fuel cell EV—is manufactured, as well as the sourcing of its battery pack.

It was feared that these new rules would drastically reduce the number of eligible EVs once the sourcing requirements go into effect on April 18 , and now we can confirm that is the case. From tomorrow, only 10 new vehicles will qualify for the full $7,500. Half of the list is made up of vehicles from General Motors but also includes two models from Tesla, Ford's electric pickup truck, and plug-in hybrids belonging to Chrysler and Lincoln.

The full list of vehicles that qualify for the $7,500 clean vehicle tax credit is:

Enlarge / Until the beginning of this year, an EV's tax credit was determined by the storage capacity of its battery pack. Now, the tax credit is linked to local manufacturing of components and locally sourced critical minerals. (credit: Julian Stratenschulte/picture alliance via Getty Images)

It's been a confusing few months for potential electric vehicle customers after the introduction of complicated new rules for the clean vehicle tax credit at the beginning of the year. Now the rules are changing once again.

On Thursday, the Internal Revenue Service published a draft of new guidance for the $7,500 clean vehicle tax credit and said that starting on April 18, it will begin enforcing the domestic sourcing requirement for battery minerals and components. As a result, many new EVs may not qualify for the tax credit.

Tell me the rules again

As we've detailed before , the revised clean vehicle tax credit has quite a few conditions that must be satisfied in order for that vehicle to be eligible.

Enlarge / "The IRA and the EV tax credits must be implemented according to the Congressional intent to ensure the United States, as the superpower of the world, is not beholden to countries that don’t share our values," Senator Joe Manchin said in a statement sent to Ars. (credit: Drew Angerer/Getty Images)

Senator Joe Manchin (D-W.Va.) is unimpressed with the temporary leniency shown toward electric vehicles in terms of the federal tax credit, and he's determined to do something about it. On Wednesday the Senator introduced a new bill, " the American Vehicle Security Act of 2023 ." The bill would immediately implement the much stricter new tax credit rules contained in last year's Inflation Reduction Act even though the Department of the Treasury hasn't finished working out how to do that. Should Manchin's bill pass, it looks unlikely that any EV would qualify.

"It is unacceptable that the U.S. Treasury has failed to issue updated guidance for the 30D electric vehicle tax credits and continues to make the full $7,500 credits available without meeting all of the clear requirements included in the Inflation Reduction Act," Manchin said in a statement sent to Ars.

That's not all. According to some outlets , the Senator wants anyone who might have been issued an EV tax credit in 2023 to have to repay it, unless they could prove the car satisfied the domestic sourcing requirements. And that could be costly news for anyone who rushed out to buy a new Tesla after that company slashed prices to allow more of its EVs to qualify for the new tax credit rules.

Enlarge (credit: Aurich Lawson | Getty Images)

The beginning of the new year means the start of a new electric vehicle tax incentive in the US. Until now, the IRS allowed taxpayers to claim a tax credit of up to $7,500 on a new plug-in vehicle, with the exact amount determined by the battery's capacity in kWh. Additionally, the credit was designed to sunset once a manufacturer sold its 200,000th plug-in, although only Tesla and General Motors ever reached that milestone.

But the Inflation Reduction Act (IRA) of 2022 rewrote the plug-in vehicle tax incentives, and the new rules went into effect at the beginning of January. Now, the tax credit is for "clean vehicles" rather than plug-ins, and it covers fuel cell EVs, some plug-in hybrid EVs, and all battery EVs.

It's a more complex beast now, however. The maximum tax credit is still $7,500, but to qualify, a vehicle must have a battery capacity of at least 7 kWh and a gross vehicle weight rating of less than 14,000 lbs, and it must have undergone final assembly in North America. There are price caps—vans, SUVs, and pickup trucks can't cost more than $80,000, and other vehicles must stay under $55,000 to qualify. There are income caps, too: $300,000 for married couples filing jointly, $225,000 for heads of households, and $150,000 for other tax filers.