The Climate and Energy Package Awaiting final approval by Congress aims to achieve two goals that aren’t always compatible: making electric vehicles more affordable while cutting China out of the supply chain.
Auto industry representatives have expressed dismay at the proposed $7,500 tax credits for electric vehicle buyers adding so few cars would qualify. Buyers can’t have very high incomes, vehicles can’t be expensive, and cars and their batteries have to meet built-in-America requirements that many automakers can’t easily achieve.
“It’s going to be very difficult for cars to qualify and for consumers to qualify for federal tax credits for EV purchases,” said John Bozella, president of the Alliance for Automotive Innovation, which represents major U.S. and foreign automakers.
Some companies will benefit more than others from the broader legislation known as this Inflation ActIt is expected to be approved by the House on Friday after the Senate’s approval on Sunday.
The new credits favor companies like Tesla and General Motors, which have been selling electric cars for years, and have restructured their supply chains to build the vehicles in the United States. A joint venture between GM and LG Energy Solutions will soon open a battery plant in Ohio, part of an electric vehicle investment by automakers and suppliers.
Vehicles sold by Tesla and GM will regain eligibility for incentives that automakers lost as they exceed their quota of 200,000 electric cars sold under current law. The law has removed that limitation.
The law could be a thorn in the side for companies such as Toyota and Stellantis, which own Chrysler, Jeep and Ram, as they have not yet started making or selling mass-produced battery-powered vehicles in the United States.
The law effectively penalizes new electric car companies like Lucid and Rivian, whose vehicles may be too expensive to qualify for the credit. Incentives apply to sedans priced no more than $55,000 and pickups, vans or sport utility vehicles priced up to $80,000.
Lucid’s cheapest sedan starts at just over $80,000. Rivian’s electric pickup starts at $72,500 but can easily top $80,000 with options. The company said it is exploring whether it can lock in incentives by entering into binding purchase agreements with customers before the new law takes effect.
Even automakers that could lose access to tax credits could benefit from the law in other ways. The bill includes billions of dollars to help carmakers build factories and establish local supply chains. Dealers will benefit from the provision of $4,000 in credits for used electric vehicles, with few strings attached.
What’s in the climate, health and tax bill
“We have to look at this law in its entirety,” said Margo Oge, former director of the Environmental Protection Agency’s Office of Transportation and Air Quality. “Is it perfect? No. It will create jobs and it will be good for the climate.
And once automakers make the necessary changes to their supply chains for the bill, they could offer some generous incentives to consumers for the rest of the decade and beyond. It may take a few years, but eventually the law will help make electric cars cheaper than gasoline and diesel vehicles, analysts say.
“The consumer tax credit was definitely not written the way I would write it,” Senator Debbie Stabenow, a Michigan Democrat, told reporters this week, referring to the $7,500 incentive. But in the interest of getting the bill passed, she said, she acceded to the wishes of Senator Joe Manchin III, a West Virginia Democrat. Mr. Manchin has said it makes no sense to subsidize electric vehicles because demand is so strong that there are long waiting lists for many models.
Still, Ms. Stabenow added, “There are a lot of surprises here for us.”
The feature of the bill that generated the most complaints is that by 2024 at least 50 percent of the components in electric car batteries must come from the United States, Canada or Mexico. This percentage will increase to 100 percent in 2028. And in 2026, the share of minerals in batteries that must come from the United States or trading allies will rise to 80 percent.
Some industry officials said it would take five years for car companies to revamp their supply chains before their products would qualify for tax credits.
Others say it is exaggerated. “I would be shocked if that happened,” said Joe Britton, executive director of the Zero Emissions Transportation Association, whose members include Tesla and battery and raw material suppliers.
While the agency would have preferred fewer restrictions, Mr. Britton said, “We still see this as a big acceleration of the electrification of transportation, especially compared to where we were a month ago.”
Some of the restrictions on eligibility for tax credits may not be as strict as they appear and may be subject to interpretation. For example, Ms. Stabenow said, it appeared that the $7,500 credit would be valid for all manufacturers next year before the content restrictions went into effect.
The Law It leaves it up to regulators to decide which elements to classify as Chinese. It is unclear, for example, whether Chinese companies such as CATL, the world’s largest battery maker, would be frozen out of the market if they produced batteries in the United States. CATL is reportedly looking to build a factory in the south to supply Ford Motor and BMW.
Mr. Despite the concessions to the fossil fuel industry at Manchin’s insistence, and the bill being too small for public transportation or two-wheeled vehicles such as scooters and electric bicycles, most environmentalists have generally praised the legislation for reducing inflation.
The Sierra Club, an environmental nonprofit, has long pushed for rewards for buyers of used electric vehicles and was glad to see it in the bill, said Kathryn Jay Garcia, director of the organization’s Clean Transportation for All campaign.
She said it makes sense not to incentivize high-income people who don’t need help. To qualify for the new electric vehicle credit, the buyer cannot have taxable income of more than $150,000 if a single filer or $300,000 for joint filers. “It stretches dollars for those who need the relief the most,” Ms. Garcia said.
Tesla, the maker of expensive cars popular with wealthy businesspeople, has managed to outperform all of its rivals in the electric car business despite losing access to the current federal electric-car tax credit several years ago. This suggests that luxury-car buyers will continue to buy electric cars, whether or not they get the tax break.
Eventually the yield cap will encourage automakers to offer less expensive vehicles, said Mark Wakefield, co-leader of the automotive and industrial practice at consulting firm AlexPartners. “You’re going to see a laser focus on getting below the $80,000 and $55,000 caps.”
Price caps and Made-in-America regulations will encourage carmakers to develop cheaper batteries that require less imported raw materials. Tesla and other carmakers are already selling cars with batteries based on iron and phosphate, called nickel and cobalt, rather than batteries containing nickel and cobalt, which are expensive and come from countries with poor human rights and environmental records. Iron-phosphate batteries are heavier but usually less expensive and last longer. Anti-inflation legislation “is going to increase the LFP’s growth,” Mr Wakefield said.
The law covers other things Provisions One that has received little attention but could accelerate sales of electric vehicles and reduce greenhouse gas emissions.
For example, there is money to help businesses install electric vehicle chargers. That’s important for people who don’t have a garage or driveway where they can install their own charger.
There are also tax credits of up to $40,000 for electric or hydrogen trucks and buses. Commercial vehicles account for a disproportionate percentage of greenhouse gas and harmful pollutants in the transport sector because they spend more time on the road than passenger cars.
“This makes battery electric propulsion compelling for commercial vehicles,” said Gareth Joyce, CEO of Proterra, a California company that makes electric buses and technology for trucks and other commercial vehicles.
GM CEO Mary T. Things the bill forces carmakers to do, such as using US-made batteries, “can’t be achieved overnight,” Barra said during a visit with President Biden this month. But the legislation “will be part of the catalyst that helps us move forward,” she added.
Ford echoed almost the same sentiment as GM, saying, “While the goal of a consumer tax credit for electric vehicles will not be achieved overnight, the bill is an important step toward meeting our shared national climate goals and helping strengthen American manufacturing jobs,” the company said. Requested the House to pass the statement.