The Cut Inflation Act of 2022 passed the US Senate on Sunday and is heading to the House of Representatives, where it is expected to pass easily. It contains many changes to the tax code, largely meant to prevent the worst effects of climate change.
Among these is a revision of the existing tax credit for new plug-in electric vehicles. As we detailed last week, the IRA introduces income limits for the tax credit, and it will only apply to sedans that cost less than $55,000 and other electric vehicles that cost less than $80,000. The bill also removes the 200,000 vehicle per OEM cap on the tax credit, which would benefit both General Motors and Tesla.
At least that will be the case if their EV batteries are primarily made in North America, with at least 40% of the materials used having been mined and processed in North America or a country with a free trade agreement. Now, instead of being based on battery capacity, half of the credit ($3,750) is tied to where the pack is made and the other half to its supply chain. And that will be a problem if you’re looking to buy an EV in 2023.
Automakers and battery manufacturers are starting to build factories in North America. In addition to the Tesla site in Nevada, GM and LG Chem build batteries in Ohio, Ford and Volkswagen using Georgia-made SK cells. Other factories are under construction: Ford and SK are build factories in Kentucky and Tennesseeto name a few, with US battery factories also underway at Stellar and volkswagen, among others. So some EVs may qualify for at least half of the full $7,500 credit, depending on how the battery value is determined.
“Ultimately, a lot will also depend on the guidelines that will have to be issued by the IRS. At first glance, it seems that almost no car will qualify, but some may end up cringing,” said Sam Abuelsamid, analyst Senior Research Fellow at Guidehouse Insights. , says Ars. Without knowing more, it’s impossible to be definitive about which electric vehicles will qualify for at least $3,750, but the list may include the Ford Mustang Mach-E, the Locally produced Volkswagen ID.4GM EVs which use its new Ultium cells and Teslas which use Nevada cells.
But it’s probably simpler when it comes to the other half of the credit. Even as these domestic battery factories increase the United States’ share of battery manufacturing, at least 40% of the critical chemicals that go into these cells must be extracted and processed locally, a percentage that will increase by 10% each year.
Right now, North America doesn’t have the capacity to handle that production – about two-thirds of the world’s lithium, much of its cobalt, and almost all of its graphite. are processed in China.
National recycling of lithium-ion batteries will provide a local source of battery materials, and the United States contains lithium deposits that have yet to be tapped. Automakers like GM were already trying to source as much locally as possible, but globally there is a race to secure contracts for future productionwhich could limit their choices.
Once the bill has been signed into law by President Biden, it is up to Transportation Secretary Pete Buttigieg to provide guidance on how the new rules will be interpreted. This includes how a person’s income will be determined in the case of a point-of-sale refund and the manufacturing value of a battery.
This must happen no later than the end of 2022, and there is no grace period once the guidelines are released. But if you have a binding contract to buy a new EV by the time the law is passed, but it hasn’t been delivered yet, he should still qualify for the old tax credit.
“Manufacturing tax credits and grant funding will help accelerate the conversion of the national industrial base currently underway. Unfortunately, the electric vehicle tax credit requirements will render most vehicles immediately ineligible This is a missed opportunity at a crucial time and a shift that will surprise and disappoint customers in the new vehicle market. It will also jeopardize our collective goal of 40-50% electric vehicle sales d ‘by 2030,’ said John Bozzella, president and CEO of the Alliance for Automotive Innovation.