Most electric vehicles will not qualify for the federal tax credit

DETROIT (AP) – A tax credit of up to $7,500 could be used to cover the cost of an electric vehicle under the The Inflation Reduction Act is now heading for final approval in Congress.

But the auto industry warns that the vast majority of electric vehicle purchases will not qualify for such a large tax credit.

This is primarily due to the bill’s requirement that, to qualify for the credit, an electric vehicle must contain a battery built in North America with minerals mined or recycled on the continent.

And those rules get stricter over time — to the point where, in a few years, no electric vehicle may qualify for the tax credit, says John Bozzella, CEO of the Alliance of Automotive Innovation, a group industry key commercial. Currently, the alliance estimates that about 50 of 72 electric, hydrogen or plug-in hybrid models sold in the United States would not meet the requirements.

“The $7,500 credit may exist on paper,” Bozzella said in a statement, “but no vehicles will qualify for this purchase for the next few years.”

The idea behind this requirement is to encourage domestic manufacturing and mining, build a robust battery supply chain in North America, and reduce industry’s reliance on battery chains. foreign supplies which may be subject to disruption.

Production of lithium and other minerals used to produce batteries for electric vehicles is now dominated by China. And the world’s largest producer of cobalt, another component of electric vehicle batteries, is the Democratic Republic of Congo.

Although electric vehicles are part of a global effort to reduce greenhouse gas emissions, they require metallic elements known as rare earths, which are found in places like Myanmar, where an Associated Press investigation found that the push for green energy has led to environmental destruction.

As part of the $740 billion economic package, which passed the Senate over the weekend and is about to be approved in the House, the tax credits would take effect next year. For an EV buyer to qualify for the full credit, 40% of the metals used in a vehicle’s battery must come from North America. By 2027, this required threshold would reach 80%.

If the metals requirement is not met, the automaker and its buyers would be eligible for half of the tax credit, or $3,750.

A separate rule would require half the value of batteries to be manufactured or assembled in North America. Otherwise, the rest of the tax credit would be lost. These requirements are also getting stricter each year, finally reaching 100% in 2029. Yet another rule would require the electric vehicle itself to be manufactured in North America, thus excluding any foreign-made vehicle from the tax credit.

Car manufacturers generally do not disclose where their components come from or how much they cost. But it’s likely that some versions of Tesla’s Model Y SUV and Model 3 car, the Chevrolet Bolt car and SUV, and the Ford Mustang Mach E would qualify for at least some of the credit. All of these vehicles are assembled in North America.

The tax credit would only be offered to couples with an income of $300,000 or less or to single people with an income of $150,000 or less. And any trucks or SUVs with sticker prices over $80,000 or cars over $55,000 would not qualify.

There’s also a new $4,000 credit for used electric vehicle buyers, a provision that could help low-income households go electric.

The industry says the North American battery supply chain is currently too small to meet battery component requirements. He proposed that the measure expand the list of countries whose battery materials would be eligible for the tax credit to countries that maintain defense agreements with the United States, including NATO members.

One element of the bill would require that after 2024, no vehicle would be eligible for the tax credit if its battery components originated in China. Most vehicles now have parts sourced from China, the alliance said.

Senator Debbie Stabenow, a Michigan Democrat and top Detroit automaker ally, complained that Senator Joe Manchin of West Virginia, a critical Democratic vote, had opposed any tax credit for purchases of electric vehicles.

“I went back and forth with Senator Manchin, who frankly didn’t support any credit of any kind, so it’s a compromise,” Stabenow told reporters Monday. “We’re going to work on it and make it as good as possible for our automakers.”

Manchin, long a recalcitrant Democrat who negotiated the terms of the agreement with Senate Majority Leader Chuck Schumer had blocked previous climate and social spending proposals.

Manchin’s office declined to comment. He told reporters last week that he wants automakers “to be aggressive and make sure we mine in North America, we process in North America, and we put a line on China. I don’t believe we should build a mode of transport on the back of foreign supply chains. I won’t.

Stabenow said the bill was drafted by people who don’t understand that manufacturers can’t just flip a switch and create a North American supply chain, even if they’re working on it. Many automakers, including General Motors, Ford, Stellantis, Toyota and Hyundai-Kia, have announced plans to build electric vehicle battery factories in the United States.

Katie Sweeney, executive vice president of the National Mining Association, said industry leaders “appreciate the requirement that minerals for batteries must be sourced from home rather than from our geopolitical rivals.”

“Doing this,” she said, “directly supports well-paying jobs here in the United States … secures our supply chain and really improves our global competitiveness.”

Stabenow said she remains hopeful the Biden administration can offer the tax credits next year while it works out detailed rules for battery requirements.

“We will continue to work with automakers and the administration to incorporate as much common sense into the regulations as possible,” the senator said.

Messages were left Monday seeking comment from the White House and the Treasury Department, which would administer the appropriations.

Stabenow is pleased that the measure restores tax credits for General Motors, Tesla and Toyota, all of which have reached caps under a previous bill and can no longer afford them. Ford, she said, is also moving closer to an EV cap.


AP writers Matthew Daly and Fatima Hussein contributed to this report from Washington.

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