It does not reduce your income. The EV credit only reduces your tax liability on 1040 line 22 to zero. Then you will get back all your withholding and any refundable credits. But it doesn't reduce any other taxes on line 23 like self employment tax or a 10% early withdrawal penalty on IRAs.
And if your tax on line 22 is less than 7,500 and you want to take advantage of the full 7,500 credit you can increase your taxable income (like convert a traditional IRA to a ROTH IRA or sell some stocks with a gain). That will increase the tax on line 16 but even though it won't increase your refund you won't pay tax on the extra income. Then you won't be paying tax on that income in the future. If this confuses you just ignore it.
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