Billions of dollars set aside in President Biden’s new spending and tax code will reward people who buy electric vehicles, but the tax credit may never reach drivers’ pockets.
To qualify their vehicles for tax credits of up to $7,500, automakers must make significant changes to how they source and assemble their battery-powered cars and trucks. That’s because China, one of the U.S.’s main rivals, controls about 80 percent of the world’s production of rare earth minerals, which are crucial for making electric vehicle batteries.
Democratic lawmakers, green groups and the auto industry worry that strict requirements for sourcing most battery materials from North America or free trade partners could render those credits useless for years to come.
John Bozzella, president and CEO of the Alliance for Automotive Innovation, a lobbying group, said 70 percent of the 72 electric vehicles on the market today are ineligible, but once the additional requirements take full effect within a few years, no One will be eligible. Potential EV buyers are urged to take advantage of current credit by making purchases before Mr. Biden signs the legislation into law.
“We’ve said that the buying incentives of the legislation are a missed opportunity, especially with the raw material and battery supply chains still in place,” Mr Bozzella said. “But Congress has also made some meaningful investments on the supply side.”
Both large and small automakers are skeptical. Electric vehicle startup Rivian Automotive said the timetable for battery demand “is prohibitive for consumers.” GM warned that “some of the regulations are challenging and cannot be achieved overnight.”
Tax credits also face progress from the international community. The European Union and South Korea have warned that Biden’s electric vehicle tax break could violate World Trade Organization rules because it discriminates against foreign-made cars.
International trade disputes aside, EV advocates argue that something is better than nothing in promoting climate-friendly vehicles, even as the industry has to overcome strict supply chain warnings. Known as the Reduced Inflation Act, the law extends tax credits into the next decade and provides more than $15 billion in funding to help domestic battery manufacturing.
“It’s huge. Unfortunately, with this policy, I like to think that roses bring thorns,” Katherine Stainken, vice president of policy for the Electrification Coalition, said in a virtual forum.
Previously, buyers could only get tax credits if automakers sold less than 200,000 electric vehicles. Large manufacturers such as Tesla and General Motors crossed this threshold a few years ago, while others are rapidly approaching the tipping point. The new law now offers automakers an opportunity to change the way they make electric vehicles and sell cars and trucks that qualify for the tax credit again.
Under the new law, electric vehicles must be assembled in North America, and batteries must begin sourcing from the United States or a free trade partner. By 2029, 100% of battery components will need to come from North America.
Credits of up to $7,500 are available for new EVs priced under $80,000 for SUVs, vans or trucks. All other EVs must be priced under $55,000. Individual buyers must earn less than $150,000. Used electric vehicles priced under $25,000 are eligible for subsidies of up to $4,000. The individual’s income must be less than $75,000.
The number of eligible new electric vehicles sold by next year will be less than 1 percent of the roughly 1.3 million sold in 2021, according to projections by the Congressional Budget Office of the nonpartisan think tank Resources for the Future. Only 190,000 cars are expected to be eligible by 2031, or about 13% of the cars sold in 2021 alone.
Electric vehicle prices are already rising, and the just-announced price increase for new electric vehicles is roughly equal to the tax credit amount.
Ford is raising the sticker price for its EVs to between $6,000 and $8,500 — the F-150 Lightning Pro is priced at $46,974, a $7,000 increase over last year’s model. GM raised the price of its electric Hummer by $6,250 last month.
Democrats were forced to include supply chain requirements, income thresholds and vehicle price caps in exchange for vital support from West Virginia Sen. Joe Manchin III to get the bill through a 50-50 divided Senate.
Mr. Manchin, a conservative Democrat, responded to criticism of the legal structure, saying manufacturers would have to figure out how to end their reliance on China in order to receive tax credits.
“Take a proactive approach and make sure we mine in North America, we process in North America, and we’re no longer dependent on China,” he told reporters earlier this month. “I’m very, very adamant that I don’t think we should build transport behind a foreign supply chain, nor would I. We make our own cars, our own combustible engines. We’ve done everything. Suddenly Can’t we? No, come on, guys. Come on.”
Clean energy advocates acknowledge the need to limit the country’s reliance on foreign enemies such as China for critical minerals should a conflict arise between Washington and Beijing. But they encouraged — but to no avail — to extend the transition and expand the list of countries that can source parts to include NATO members.
Abigail Wolf, head of critical minerals at Securing America’s Future Energy, described the tax credit as a “juicy carrot” for the automaker to “create a responsible supply chain.”
One potential short-term solution advocates point to is for the federal government to provide waivers to smaller manufacturers who face greater barriers to boosting domestic production.
Another is to allow reforms to speed up various forms of energy projects, a contentious political issue that Democrats promised Mr Manchin they would do in the coming weeks, but that would require Republican support.
“You can’t get enough to meet our current needs, let alone new ones.” said Frank Maisano, a partner at Bracewell, a Washington law firm that works with the fossil fuel and clean energy industries. It takes about 12 years to get a license and put it in place. “These are big issues, these are just a small part of what we have domestically. “