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A closer look at the EV tax credit requirement that could exclude most electric cars

EV companies will face higher electric car price based on limited EV tax credit.

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AUTOMOTIVE CITY OF DETROIT — The Inflation Reduction Act is moving closer to final approval in Congress, with a House vote expected on Friday. This act would provide a tax credit of up to $7,500 to be used toward the purchase of an electric vehicle.

Research Make (e.g. Cadillac)

However, automakers are sounding the alarm that a tax credit of that magnitude won’t apply to very many EV purchases.

That’s because the bill mandates that, in order to receive the credit, an EV’s battery must be assembled in North America from raw materials sourced from the continent itself, either through mining or recycling.

According to John Bozzella, CEO of the Alliance of Automotive Innovation, a major industry trade group, the rules become more stringent over time, to the point where it is possible that in a few years, no EVs would qualify for the tax credit. About half of the 72 electric, hydrogen, or plug-in hybrid models currently sold in the US would not be compliant, according to the alliance’s estimates.

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The $7,500 deduction could theoretically exist, “As Bozzella put it in a statement, “but no vehicles will qualify for this purchase over the next few years.”

The goal of the mandate is to reduce the industry’s reliance on supply chains in other countries, which could be disrupted in the event of a natural disaster or war.

These days, China is the world leader in the production of lithium and other minerals used to make EV batteries. Also essential to EV batteries is cobalt, which is primarily mined in the Democratic Republic of the Congo.

However, an Associated Press investigation found that the push for green energy has led to environmental destruction in places like Myanmar, where rare earth metals are mined. Electric vehicles are part of a global effort to reduce greenhouse gas emissions.

The tax credits would begin in 2020 if the House approves the $740 billion economic package that the Senate passed over the weekend. It is required that at least 40% of the metals used in an EV’s battery be sourced from North America for the buyer to be eligible for the full credit. Expected compliance with this benchmark to reach 80% by 2027.

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In the event that the metals requirement isn’t met, the automaker and the buyers would be eligible for half of the tax credit, or $3,750.

A separate rule would stipulate that 50% of the value of the batteries must be produced or assembled in North America. Otherwise, the remaining portion of the tax credit would be wasted. Also, these prerequisites become more stringent annually, rising to a full 100% by the year 2029. Another rule would stipulate that the EV must be made in North America; this would disqualify vehicles made elsewhere from receiving the tax credit.

In most cases, manufacturers of automobiles will not disclose the cost or origin of their components. A portion of the credit is likely to be available, however, for vehicles such as the Ford Mustang Mach E, Chevrolet Bolt EV and EUV, and Tesla Model Y in at least some of its configurations. Those automobiles are all put together in the North American continent.

Only households earning $300,000 or less per year, or individuals earning less than $150,000, would qualify for the tax credit. Also ineligible would be pickups and SUVs with MSRPs in excess of $80,000, as well as cars with MSRPs in excess of $55,000.

A new $4,000 credit for used EV buyers with a stricter income cap may encourage low- and middle-income families to make the switch to electric vehicles.

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Experts in the field claim that there is not enough capacity in the North American battery supply chain to meet the current demand for battery components. It has been proposed that the measure be amended to include countries with defense agreements with the United States, such as NATO members, on the list of countries whose battery materials would be eligible for the tax credit.

Sen. Debbie Stabenow (D-MI), a key ally of Detroit automakers, was displeased to learn that Sen. Joe Manchin (D-WV), a swing vote among Democrats, had voted against providing tax credits for the purchase of electric vehicles.

“I went round and round with Senator Manchin, who frankly didn’t support any credit of any kind, so this is a compromise,” Stabenow told reporters on Monday. To quote the team, “We’ll work through this and make this as good as possible for our automakers.”

Prior climate and social spending proposals were blocked by Manchin, a long-time holdout Democrat who negotiated terms of the deal with Senate Majority Leader Chuck Schumer.

The office of Manchin made no comment. Last week, he told reporters that he wants automakers to “get aggressive and make sure that we’re extracting in North America, we’re processing in North America, and we put a line on China.” In my opinion, we shouldn’t rely on overseas manufacturing to build a transportation network. “I’m not going to do that.

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Stabenow claimed the bill’s authors failed to take into account the fact that building a North American supply chain isn’t as easy as turning a switch, despite manufacturers’ best efforts. GM, Ford, Stellantis, Toyota, and Hyundai-Kia are just some of the automakers that have announced plans to construct EV battery plants in the USA.

She then proclaimed, “That,” “strengthens our supply chain and helps us remain competitive on a global scale

Despite the delay in finalizing the regulations for the battery specifications, Stabenow said she is still hopeful the Biden administration will be able to offer the tax credits next year.

The senator vowed to keep working with the automakers and the administration to incorporate as much common sense as possible into the regulations.

On Monday, we sent messages to the White House and the Treasury Department (which would be in charge of distributing the credits) asking for comment.

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Repealing the cap on tax credits means that GM, Tesla, and Toyota will once again be able to offer them, which has Stabenow very pleased. She also mentioned that Ford is making progress toward an EV milestone.

Article first published on Autoblog on Fri, 12 Aug 2022 13:28:00 EDT about the EV tax credit requirement that could exclude most electric cars. If you wish to use feeds, please read our policies first.