If you’re looking to buy an electric car in the near future, you’d better place your order before President Biden enacts the big Democrat climate, tax and health package — which could happen as early as this weekend.
Why it matters: Democrats initially hoped to dramatically increase EV adoption through the bill, dubbed the Inflation Reduction Act, by expanding existing excise tax credits for battery-powered vehicles.
- But strict supply chain requirements added by West Virginia Democrat Sen. Joe Manchin could instead slow the nation’s switch from gas-powered cars — at least in the short term.
Driving the news: To get Manchin to pass the broader bill, the rest of Senate Democrats agreed that only cars with batteries that contain a certain percentage of materials sourced from North America or U.S. trading partners would be eligible for future credits — too if this is not the case. t reconcile with manufacturing reality.
- Although the auto industry and battery manufacturers are trying to invest in a domestic supply chain, it will take years for these facilities to become operational. Currently, the EV supply chain is mostly dominated by China – but all cars using Chinese-made battery components would be excluded from tax credits under the new bill.
- The bill seeks to address this by phasing in battery and mineral requirements over time, and giving the industry plenty of financial help to build domestic production.
- But certain regulations — like a new requirement that electric vehicles must be assembled in North America to be eligible for the loans — will go into effect immediately after the president signs the law into law.
- According to the Alliance for Automotive Innovation, an auto industry lobby group, the list of eligible vehicles will be automatically reduced from 72 to around 25. And if additional procurement requirements come into force in 2023, none of today’s electric vehicles would qualify for full recognition, the group says.
Where it says: Electric vehicle buyers are currently eligible for a state tax credit of up to $7,500, but the benefit is capped at 200,000 vehicles per manufacturer.
- Early market leaders such as Tesla and General Motors have already reached this limit, meaning that their customers are no longer eligible for the loan. Others see the credits running out.
- The IRS has a complete list of currently eligible vehicles.
What’s new: The new law would remove the manufacturer cap from 2023. But only vehicles under a certain price point ($80,000 for trucks and SUVs or $55,000 for all other vehicles) would qualify.
- Eligible buyers must also earn less than $150,000 if single or $300,000 if married.
- Buyers of used EVs could receive a credit of up to $4,000.
Zoom out: Passing the new law required Senate Democrats to be fully united – giving Manchin plenty of leverage to force concessions.
What you say: “The $7,500 credit may exist on paper, but no vehicle will qualify for this incentive for years to come,” writes John Bozzella, president and CEO of the Alliance for Automotive Innovation, in a blog post.
- “This is a missed opportunity at a crucial time, and a change that will surprise and disappoint customers in the new vehicle market,” Bozzella writes, adding that it will also be a “major setback” to the country’s efforts will reach 40-50%. Sales of electric vehicles by 2030.
Yes but: People will buy electric vehicles even without federal tax credits — especially if gasoline prices remain relatively high — but only if they’re available. Inventories are tight and prices are rising sharply.
- In the long run, building a domestic EV supply chain should make EVs cheaper — eventually.
What’s next: The House of Representatives is expected to approve the bill on Friday and quickly send it to Biden’s desk. After that, it will take some work to figure out which vehicles qualify for which portion of the tax credit over time.
- It is up to the US Treasury Department to implement guidelines for measuring battery and mineral content by the end of the year.
- Then each automaker has to figure out how many individual vehicles qualify.
The bottom line: There are still many unknowns about the impact of this legislation on consumers.