A proposed overhaul of the US’s clean vehicles policies has automakers and dealers scrambling. At question is whether they can still offer $7,500 in tax credits to electric vehicle (EV) buyers. The bill that has caused the confusion is the $430 billion climate, healthcare, and tax bill, which substantially changes EV policies and incentives.
Democrats had two goals in writing the bill as it pertains to EV subsidies:
- Encourage EV adoption to reduce emissions
- Incentivize automakers to move their supply chains to the USA
To spur both, the EV subsidy process would be substantially altered. The criteria are as follows:
To qualify for the EV credit, the vehicle would need:
- To be assembled in North America, which kicks in immediately upon bill signage
- Have at least 50% of its battery components made in North America by 2024
- Have 100% of its battery components made in North America by 2028
- Meet or exceed new mineral thresholds in batteries for rare earth metals
To accomplish that, the bill replaces the $7,500 EV tax credit, an incentive to purchase EVs. To qualify for the EV tax credit after this bill gets signed into law, the steps above must be in place by auto manufacturers. That raises the question of what happens to the $7,500 tax credit on EVs already on the market or in production.
Does the $7,500 tax credit for an EV purchase still apply to those vehicles? Or, does the tax credit only apply if an EV already meets the criteria above?
Those are just two of many questions that manufacturers, dealers, and consumers have regarding the proposed bill.
In addition, there is the issue of the mineral quotient in batteries. Currently, several rare earth metals are not produced in the US. We get them from places like The Democratic Republic of Congo, China, and Myanmar, all of which have sanctions on them for human rights abuses or are trading partners with whom the US does not want to normalize trading relations.
The Legislation will cause “a significant change in value chain requirements, in a very short period of time, that affects an industry where supply chain development … is measured in years,” according to John Loehr, a managing director with consulting firm AlixPartners.
Tax Credit Questions
Another significant impact will be the termination of the $7,500 tax credit for vehicles assembled outside of North America, which currently comprises 70% of the 72 EV and hybrid on the USA market. The fear is that terminating the tax credit will be a significant blow to the motivation of consumers to invest in EVs.
The Congressional Budget Office estimates that as few as 11,000 EVs will qualify for the tax credit in 2023. The bill will allow consumers to get the tax credit under the old framework if they purchase before President Biden signs the bill into law, but they must have a “written binding contract” to purchase.
US Transportation Secretary Pete Buttigieg sees it differently. Calling the bill a “long-term transformational policy” that will ensure the EV revolution is “made in America,” Buttigieg is hopeful the auto industry will rise to the occasion.
Buttigieg believes the “industry is capable of sometimes more than they will at first see.”