General Motors can smile.
The Detroit giant's lobbying efforts with the Biden administration have borne fruit.
The automaker, whose situation in the electric SUV/crossover market had been particularly weakened in recent weeks, seems to be back in the race.
Indeed, at the end of December the Treasury Department and the Internal Revenue Service (IRS) had published the criteria for vehicles eligible for the new federal tax credit granted to electric vehicles under the Inflation Reduction Act (IRA). This credit of $7,500 aims to encourage the adoption of green vehicles by the masses.
To qualify for the federal tax credit, cars, sedans and wagons needed to have a retail price of no more than $55,000. SUVs, on the other hand, with a retail price of up to $80,000 were entitled to the tax credit of $7,500.
The problem was knowing which vehicle was considered an SUV. The IRS had decided to adopt a definition of SUV different from other federal agencies such as the Environmental Protection Agency (EPA) or example. This automatically excluded the Lyriq, the very first electric vehicle from Cadillac, GM's premium brand, from the federal tax credit. The base price of the Cadillac Lyriq is $62,500.
EV War
Consumers also buying variants of Tesla's Model Y and versions of the Ford Mach-E couldn't claim the aid.
General Motors (GM) and Tesla (TSLA) had officially protested. Elon Musk's group and its fans had launched a petition while GM had chosen the traditional route of lobbying behind the scenes.
"In determining how vehicles should be classified, Treasury should leverage existing U.S. government definitions and practices, using criteria and processes similar to that used by the Environmental Protection Agency (EPA) and the Department of Energy (DOE)," GM urged on Jan. 9. "This drives consistency across existing federal policy and clarity for consumers, particularly when utilizing relevant EPA and DOE resources like fueleconomy.gov."
"We are addressing these concerns with Treasury and hope that forthcoming guidance on vehicle classifications will provide the needed clarity to consumers and dealers, as well as regulators and manufacturers."
The restrictive interpretation of the SUV by the Treasury Department put GM in a precarious situation as the carmaker is trying to catch up with Tesla. In addition, on Jan. 12, Tesla drastically lowered the prices of its vehicles, and in particular the Model Y which is the direct competitor of the Lyriq.
The price cuts brought all versions of the Model Y into line with the requirements of the IRS. Ford (F) followed suit a few days later by cutting prices of the Ford Mustang Mach-E despite the move being financially costly for the Dearborn automaker.
GM had not moved but the price war launched by Tesla has completely reshuffled the cards. The Austin, Texas-based automaker has since racked up record orders.
"We currently are seeing orders at almost twice the rate of production. So, I mean that -- it's hard to say whether that will continue twice the rate of production, but the orders are high," Musk told analysts on Jan. 25.
As a result, Tesla has raised the Model Y price, the self-described Techno King added. "So we think demand will be good despite probably a contraction in the automotive market as a whole."
Tesla has even allowed itself to raise prices again and, recently, delivery times for the Model Y have lengthened. For industry sources this means that Tesla is taking back market share from its rivals.
The Government Changes its Mind
A strong reaction was therefore expected from competitors and more particularly from GM if they wanted to stand a chance against Musk and Tesla. The help comes from the government since the Treasury Department has just revised its definition of a SUV so that now all versions of the Cadillac Lyriq are eligible for the federal tax credit.
"Treasury is updating the vehicle classification standard to use the consumer-facing EPA Fuel Economy Labeling standard," it announced on Feb.3. The change "will allow crossover vehicles that share similar features to be treated consistently. It will also align vehicle classifications under the clean vehicle credit with the classification displayed on the vehicle label and on the consumer-facing website FuelEconomy.gov."
Therefore, customers who have purchased and placed in service vehicles since January 1, that qualify under the EPA classification can claim the tax credit, the government added.
This update is a big victory and a big relief for GM, which therefore sees all versions of the Lyriq now eligible for the federal tax credit.
"Tax credits are a proven accelerator of electric vehicle adoption, and we are excited that qualifying customers will be able to take advantage of a $7,500 federal clean vehicle tax credit, including the Spring Hill, Tennessee-built, all-electric Cadillac Lyriq SUV," a spokesperson said in an emailed statement.
GM asserted the update "will provide the needed clarity to consumers and dealers, as well as regulators and manufacturers."
