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The all-electric Cadillac Lyriq has a high-riding position that lets you see over much of traffic from the driver’s seat. Its roof extends to its rear hatch, giving it a cargo area behind the rear seats instead of a separate trunk. It’s boxy and tall — 7 inches of ground clearance won’t get it over many trail obstacles, but if you parked it next to a Honda Civic, it would fully block the view of the car.
In other words, it’s an SUV.
At least, that’s how Cadillac sees it. That’s how Cadillac markets it.
But the IRS has decided that it isn’t because it only (for now) comes in rear-wheel drive.
The question isn’t semantic. It’ll cost some shoppers $7,500. Which means, in practice, it will cost Cadillac sales.
A new law changes EV tax credit rules
Last summer, Congress passed a new law governing the $7,500 tax rebate the federal government offers to buyers of electric vehicles. The law is complex and has many goals.
Among them, it’s aimed at getting more Americans into EVs to help slow climate change. It eliminated a 200,000-per-manufacturer cap, ensuring Americans can buy endless electric cars from any manufacturer and count on the federal rebate.
The law tries to boost domestic manufacturing by limiting tax credits to vehicles built in North America. That provision has already caused some automakers to invest in new American factories.
And it institutes price caps, as Congress didn’t want to use tax dollars to help wealthy Americans buy luxury cars. To qualify for the rebate, a car must cost under $55,000. However, an SUV, truck, or van can cost up to $80,000 and still qualify.
Learn more: New 2023 EV tax incentives: How they work, which cars qualify, and where to get even more savings
That puts money behind the question of what, exactly, counts as an SUV. The IRS was left to make the decision. Automakers are not happy with some of the decisions the agency has made.
It was once easy to spot an SUV
A 1966 Ford Bronco
Ford
To be fair to the IRS (yes, we just said that), automakers have spent decades blurring the line that defines “sport utility vehicle.”
When rugged, boxy things like the International Harvester Scout and the original 1966 Ford Bronco inspired the term, it wasn’t hard to spot one. They were boxy, tall wagons built on truck frames, so they were good off-road. But their truck-like nature made them shaky and squeaky road cars, so few people used one to replace a family sedan.
Today, we can’t say that. There are lots of unibody SUVs (“crossovers,” if you’re over 40 and can remember when car-like SUVs were a novelty). There are even unibody pickup trucks (hey, Ford
F,
Maverick, how you doin’?)
Check out: How Consumer Reports ranks 11 popular electric vehicles for reliability
Now it’s about third rows, breakover angles, and bureaucratic headaches
So what, exactly, is an SUV? The IRS was left to decide. Needing something to base its decisions on, it adopted an old set of definitions from the Department of Transportation.
Three-row vehicles automatically qualify, as do vehicles with open cargo beds. Easy enough – those are functionally vans and trucks. That rule allows many vehicles automakers market as SUVs to qualify as, essentially, vans.
Two-row vehicles, however, are hard cases.
To qualify as an SUV, the rules say, a 2-row vehicle must have all-wheel drive or weigh more than 6,000 pounds, and meet at least four of five measurement criteria having to do with ground clearance and angles between the wheels and the bumpers.
Some don’t have the angles. The Tesla
TSLA,
Model Y, for instance, doesn’t meet the measurement criteria. Three-row versions get the $80,000 limit as vans. Two-row versions get the $55,000 limit as cars. Tesla recently cut the Model Y’s (2-row) starting price of $65,990 to $52,990.
Tesla charges $3,000 for the third row of seating.
Read: Tesla’s U.S. price cuts mean more models are eligible for federal EV tax credit
The Lyriq has the angles but not the AWD or the 6,000-pound minimum weight. So, to the IRS, it’s a car. Its starting price — $62,990 — puts it over the price cap for cars.
Cadillac plans to start marketing AWD Lyriq models that may qualify. For now, it builds only RWD models, which don’t.
Ford markets its Mustang Mach-E as an SUV, but the IRS classifies it as a car. Some Mach-E models cost more than $55,000, so Mach-E buyers may or may not qualify for a tax credit based on trim level.
The Ford Mustang Mach-E
Ford
Automakers talking to IRS
Cadillac is asking for a rule change. “We are addressing these concerns with [the Treasury Department] and hope that forthcoming guidance on vehicle classifications will provide the needed clarity to consumers and dealers, as well as regulators and manufacturers,” the company tells Reuters.
They may not have much luck. A Treasury spokesperson countered that the rules “are pre-existing — and longstanding — EPA regulations that manufacturers are very familiar with. These standards offer clear criteria for delineating between cars and SUVs.”
A group of Tesla loyalists has taken a different approach, starting a Change.org petition asking for the rules to be changed. At press time, it had just over 53,000 signatures.
What it means for car shoppers
If you’re in the market for a vehicle left off the SUV list, we can’t advise you to wait for the rules to change.
Another provision of the law complicates your problem.
The act also requires automakers to use minerals sourced from the U.S. or major trade partners to make EV batteries. Today, almost all of the minerals used in EV batteries come from China.
Those rules kick in starting March — and, at the moment, it appears automakers won’t be ready. They’re scrambling to build new supply lines excluding Chinese minerals, but most say they aren’t there yet.
It’s possible no EVs will qualify for any tax credit in March. They’ll get back on the list as automakers start sourcing minerals from outside of China. At the moment, no one knows when that will happen.
This story originally ran on KBB.com.
