Starting in 2025, the federal tax credit for electric vehicles (EVs) and plug-in hybrid electric vehicles (PHEVs) in the U.S. will significantly narrow, applying to fewer models. The U.S. government is tightening the Foreign Entity of Concern (FEOC) provision, excluding vehicles with battery components from China, which may limit eligibility for the tax credit of up to 7,500 USD.
As of 2024 and 2025, new regulations require battery raw materials and components for North American vehicles to come from the U.S. or countries with Free Trade Agreements (FTAs), significantly reducing the number of eligible vehicles for tax benefits. Previously, most vehicles produced in North America qualified for these benefits.
As of 2025, the list of EVs and PHEVs eligible for tax credits has been significantly reduced. The Volkswagen ID.4 and Rivian R1 series are excluded, while models like the Hyundai IONIQ 5, Kia EV9, Tesla Cybertruck, Cadillac Optiq and Vistiq, and Chevrolet Equinox EV remain eligible. A total of 30 models qualify for the tax credit in 2025.
Starting in 2024, the FEOC provision will bar vehicles with battery materials or components from designated countries, including China, from receiving tax credits. Due to China’s dominance in the global battery supply chain, many vehicles have been excluded from eligibility.
Exceptions apply to leased vehicles. Consumers who lease a vehicle can qualify for the full 7,500 USD tax credit, regardless of the country of manufacture. This loophole enables non-North American EV brands, such as Kia and Hyundai, to effectively target the U.S. market.
Starting in 2024, the tax credit will be applied immediately at the point of sale, reducing the actual vehicle price for consumers. The U.S. Treasury reported that over 150,000 transactions used this point-of-sale credit in 2023, resulting in approximately 1 billion USD in incentives.
The 2025 EV tax credit system focuses on two main goals: protecting strategic industries and reducing dependence on China. The U.S. is restructuring its energy supply chain through the Inflation Reduction Act (IRA), with a strong push to exclude China, particularly in the battery sector.
This change has resulted in a short-term reduction in vehicles eligible for tax credits, but it aims to boost North American production and diversify material supply in the long run. American manufacturers like General Motors, Ford, and Tesla benefit from these changes, while European brands and manufacturers based in Chinese factories face challenges.
Hyundai Motor Group leverages leasing strategies until its Georgia electric vehicle plant completes and strengthens its collaboration with LG Energy Solution for U.S. battery production. This move could increase the number of eligible models in the future.
This regulatory change goes beyond reducing benefits and reshapes the global supply chain and EV market policy leadership. Korean manufacturers must now track battery origins, use leasing strategies and adjust the pace of localization in North America.
