Most electric vehicles will not qualify for the federal tax credit

DETROIT — A tax credit of up to $7,500 could be used toward the cost of an electric vehicle under the Inflation Reduction Act now moving toward final approval in Congress. But the auto industry warns that the vast majority of electric vehicle purchases won’t 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, executive director of the Alliance of Automotive Innovation, a key trade group. of the industry. As of now, the alliance estimates that about 50 of the 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 years to come.”

The idea behind the requirement is to incentivize domestic manufacturing, build a strong North American battery supply chain, and lessen the industry’s reliance on overseas supply chains that could be subject to disruption.

The production of lithium and other minerals that are used to make EV batteries is now dominated by China. And the world’s leading producer of cobalt, another component of electric vehicle batteries, is the Democratic Republic of the 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 the destruction of the environment.

Under the $740 billion economic package, which passed the Senate over the weekend and is about to pass 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, that required threshold would reach 80%.

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

A separate rule would require that half the value of the batteries be made or assembled in North America. Otherwise, the rest of the tax credit would be lost. Those requirements also become stricter each year, eventually reaching 100% by 2029. Yet another rule would require that the EV itself be made in North America, thereby excluding any foreign-made vehicles from the tax credit.

Automakers generally don’t disclose where their components come from or how much they cost. But some versions of the Model Y SUV and Tesla’s Model 3, Chevrolet Bolt and Ford Mustang Mach E are likely to be eligible for at least some of the credit. All of those vehicles are assembled in North America.

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

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

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

One component of the bill would require that after 2024, no vehicle is eligible for the tax credit if its battery components come from China. Most vehicles now have some parts from China, the alliance said.

Sen. Debbie Stabenow, a Democrat from Michigan and a leading ally of Detroit automakers, complained that Sen. Joe Manchin of West Virginia, a critical Democratic vote, had opposed any tax credit for electric vehicle purchases.

“I went round and round with Senator Manchin, who quite frankly did not support any credit of any kind, so this is a compromise,” Stabenow told reporters Monday. “We will work through this and make it the best we can for our automakers.”

Manchin, a longtime holdout Democrat who negotiated terms of the deal with Senate Majority Leader Chuck Schumer, had blocked earlier climate and social spending proposals.

Manchin’s office declined to comment.

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

Stabenow said he is hopeful the Biden administration will be able to offer the tax credits next year as it works out detailed rules for the battery requirements.

“We will continue to work with automakers and the administration to bring as much common sense to 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 loans.

Stabenow says she is pleased the measure would restore tax credits for General Motors, Tesla and Toyota, all of which were capped in a previous bill and can no longer offer them. Ford too, she said, is nearing an EV limit.

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

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