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Biden administration expands EV tax credits in boost for Tesla, Cadillac, others

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A Tesla Model Y on display inside a Tesla store at the Westfield Culver City shopping mall in Culver City, California, U.S., on Thursday, April 14, 2022.
Bing Guan | Bloomberg | Getty Images

DETROIT – The U.S. Treasury said Friday it is changing its definition of an “SUV” to make more electric vehicles from Tesla, General Motors and other automakers eligible for up to $7,500 in federal tax credits at higher prices.

The decision follows Tesla CEO Elon Musk publicly criticizing the former standards on Twitter as well as automakers such as GM and Ford Motor lobbying to change the guidelines ahead of final rules being announced next month.

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 models of these vehicles did not qualify because they didn’t weigh enough to be considered an SUV by the Treasury’s standards.

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.

Comparison of Ford, GM and Tesla shares.

It’s unclear how the decision will impact up to 20% pricing cuts announced by Tesla last month that made the Model Y eligible for the credits. Tesla did not immediately respond for comment.

Wall Street applauded Tesla’s price reductions but also was concerned that they would start an EV pricing war and pressure margins of other automakers, despite rising commodity costs for the vehicles. 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 Alliance for Automotive Innovation, a lobbying group for most automakers operating in the U.S., also commended the decision.

– CNBC’s Chelsey Cox contributed to this article.

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