A major auto group said tax credit requirements will make most of their electric vehicles immediately ineligible and jeopardize sales targets.

Simone Del Rosario Business Correspondent

Most electric vehicles will not qualify for $7,500 tax credit

Aug 09, 2022

Simone Del Rosario Business Correspondent

By Simone Del Rosario (Business Correspondent), Emma Stoltzfus (Editor), Brent Jabbour (Producer)

Most electric vehicles would not qualify for $7,500 federal tax credits included in Democrats’ sweeping economic bill due to restrictions over manufacturing and materials. The revelation has a major automotive group sounding the alarm, saying the credits will derail manufacturers’ efforts to have EVs make up half of their sales by 2030.

The Alliance for Automotive Innovation, which represents GM, Toyota and Volkswagen, said the requirements will make most of their vehicles immediately ineligible and jeopardize sales targets put forth by manufacturers and the Biden administration.

“It’s not an overreaction,” The Car Coach Lauren Fix told Straight Arrow News. “First thing is that you can get the $7,500 tax credit if the vehicle is built in North America, well, that’s only about half of the vehicles that are produced. And then in addition to that, the batteries cannot have Chinese products or be built in China, and that’s going to take out the bulk of those batteries out of it.”

The expanded tax credit is part of the Inflation Reduction Act, which passed the Senate Sunday along party lines. It is intended to offset consumer costs for EVs over the next 10 years, giving Americans $7,500 to purchase a new electric vehicle or $4,000 to purchase a used one that falls under the listed requirements.

“The $7,500 credit might exist on paper, but no vehicles will qualify for this purchase incentive over the next few years,” Alliance for Automotive Innovation CEO John Bozzella said.

Bozzella said 70% of current EV models sold in the U.S. would be immediately ineligible, increasing to 100% as the requirements become more strict.

The restrictions behind the credit are clearly designed to push car manufacturers to source more domestically, incentivizing North American production over overseas relationships with China in particular. But China controls roughly 75% of the battery market, and production of minerals used in batteries is dominated by the country.

“When you’re looking at batteries, you’ve got all these government regulations which makes it very expensive, which is why a lot of manufacturers produce their batteries in other countries, because they don’t have the same government regulations, environmental regulations and taxation,” Fix said.

Under the $740 billion economic package, 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 metals requirement isn’t met, the automaker and its buyers would be eligible for half the tax credit, $3,750.

“We don’t mine [needed minerals] here,” Fix said. “We don’t mine cobalt here because it’s so hazardous to the environment. We are working on lithium mines here in the U.S., they’re not up and running and they won’t be up and running in the next couple of [months]. And so when you can’t get some of these rare Earth minerals and they have to come out of China or the Ukraine, that’s going to be a problem.”

“As of today, this is not a good plan,” she added.

The tax credit would be available only to couples with incomes of $300,000 or less or single people with income of $150,000 or less. Any trucks or SUVs with sticker prices above $80,000 or cars above $55,000 would be ineligible.

The Inflation Reduction Act is nearing approval in the House. Once approved there, it will be sent to the president to sign.

The Associated Press contributed to this report.

Tags: Joe Biden

SIMONE DEL ROSARIO: DEMOCRATS ARE FORGING AHEAD WITH LEGISLATION THAT WOULD EXPAND A 75-HUNDRED DOLLAR ELECTRIC VEHICLE TAX CREDIT FOR THE NEXT 10 YEARS. BUT THERE’S A CATCH.

VEHICLES MUST BE ASSEMBLED IN NORTH AMERICA, AND MOST CRITICAL MATERIALS, CAN’T COME FROM CHINA.

THIS HAS A MAJOR AUTO GROUP SOUNDING THE ALARM – SAYING THE CREDITS WILL DERAIL MANUFACTURERS’ EFFORTS TO HAVE E-VS MAKE UP HALF THEIR SALES BY 2030.

I WANT TO BRING IN THE CAR COACH LAUREN FIX. Lauren thanks for being with me today.

LAUREN FIX: Thanks for having me.

SIMONE DEL ROSARIO: LAUREN, THE ALLIANCE FOR AUTOMOTIVE INNOVATION, WHICH REPRESENTS GM, TOYOTA, VOLKSWAGEN, SAYS THESE REQUIREMENTS ARE GOING TO MAKE MOST OF THEIR VEHICLES IMMEDIATELY INELIGIBLE, MAKING IT HARDER FOR THEM TO REACH THAT 50% GOAL. DO YOU THINK THAT’S AN OVERREACTION OR ARE THESE TARGETS IN JEOPARDY?

LAUREN FIX: No, I think the targets are actually in jeopardy. And it’s not an overreaction, Ford and GM petitioned heavily, the federal government to put that $7,500 tax credit back and they did however, they put it across all product lines. So they then eliminated companies like Tesla, GM, Ford, Toyota, who were not able to get that $7,500 tax credit to consumers, they’re now giving it back to them. However, there’s all these little caveats as there always is in federal government. First thing is that you can get the $7,500 tax credit if the vehicles built in North America, well, that’s only about half of the vehicles that are produced. And then in addition to that the batteries cannot have Chinese products are built in China. And that’s going to take the bulk of those batteries out of it, which means you as a consumer will not be getting any tax credit whatsoever. They did try to soften the blow a little bit by offering a $4,000 tax credit for used EVs. Although there has been a lot of problems with used EVs, because you don’t want the maintenance and who took care of it before you just like any, any used vehicle. And that’s been a problem all along. So I don’t know if it’s gonna help the US market that much because you can’t even find vehicles if you want to do.

SIMONE DEL ROSARIO: I WANT TO TOUCH ON THE BATTERY FACTOR OF THIS. THIS IS CLEARLY A PUSH TO BE MORE AMERICAN MADE HERE. BUT LET’S TALK ABOUT THOSE REALITIES WITH THE BATTERIES, WHICH ARE ESSENTIALLY THE ENGINES BEHIND THESE EVS. CHINA ACCOUNTS FOR ROUGHLY 75% OF THE BATTERY MARKET TODAY. IS IT REALISTIC TO EXPECT MANUFACTURERS TO BE ABLE TO AVOID THAT MARKET BY NEXT YEAR?

LAUREN FIX: No, there’s no way they can do it. By next year, they have a chip shortage as well, which again, that’s owned by China. But now we’re talking about the batteries, you’ve got cobalt, cadmium, lithium, mercury, neodymium, there’s seven rare earth minerals, that’s only five of them. And we don’t mind them here. We don’t mind cobalt here, because it’s so hazardous to the environment. We are working on lithium mines here in the US, they’re not up and running. And they won’t be up and running in the next couple of weeks or months for that matter. And so when you can’t get some of these rare earth minerals, and they have to come out of China or the Ukraine, that’s going to be a problem, because this is the issues that Ukraine isn’t obviously shipping anything. So that means we’re relying 100% on China. And things are just getting worse from there. As far as shipping things over here, we still have problems with supply chain, I have no idea how we’re going to make this happen. It sounds to me that it sounds good on the surface for the consumer, but in reality, it’s going to hurt car manufacturers and then they’re going to raise the taxes on them besides is not an incentive for them to build those battery factories here in the US.

SIMONE DEL ROSARIO: WHO IS IN THE BEST POSITION RIGHT NOW TO BE ABLE TO CAPITALIZE ON THESE TAX CREDITS?

LAUREN FIX: Well, the only one that’s going to be able to capitalize is probably going to be Tesla, which already he’s outsold Mercedes and on the brink of being the number one selling vehicle. He’s gonna outsell Toyota. They they got to have other issues with Toyota. As far as getting product to market, everyone’s got EV problems, we can’t get batteries, we can’t get chips. And this is not the fault of the car manufacturer. This is because China is controlling everything. And there’s no way for us to start mining all this stuff, you’re our Environmental Protection Agency will not allow us to do that. And that’s going to be a big problem. And I highly doubt if they want to go green, they’re going to let us start mining here. So they’re going to have to make a decision. This This won’t work. When this gets to the house, we’ll see what changes happened to it. But as of today, this is not a good plan.

SIMONE DEL ROSARIO: SO WHILE DEMOCRATS CLEARLY WANT TO PRESSURE THIS INDUSTRY TO MOVE AWAY FROM CHINESE PRODUCTS, YOU’RE TELLING ME THERE’S NO FEASIBLE WAY TO MAKE SIGNIFICANT GAINS IN THAT.

LAUREN FIX: not by 2023. thing is if you were to open a chip factory, just that alone, it takes three years to get it up and running for the first chip to get off the production line to be usable. When you’re looking at batteries. You’ve got all these government regulations, which makes it very expensive, which is why a lot of manufacturers produce their batteries in other countries, because they don’t have the same government regulations, environmental regulations and taxation. And so that’s why you see a lot of things being shipped overseas, whether it be Taiwan, which could be a problem if China decides to invade that would really put us in a bad position.

SIMONE DEL ROSARIO: SO LET’S SAY THESE MANUFACTURERS MAKE THE CHANGES THAT ARE NECESSARY FOR AT LEAST SOME OF THEIR MODELS TO BE ABLE TO QUALIFY UNDER THESE TAX CREDITS. NOW, LET’S MOVE ON TO THIS. SOME ANALYSTS SAY THAT THESE INCENTIVES ARE JUST GOING TO ALLOW MANUFACTURERS TO PUSH UP THEIR PRICES OVERALL TO BE ABLE TO BOOST THEIR PROFITS. DO YOU THINK THERE’S ANYTHING TO THAT?

LAUREN FIX: Exactly, that’s exactly what’s gonna happen, they’re gonna raise the price because none of the car manufacturers, including Tesla make a profit on the vehicle sale itself. Tesla makes the money on selling carbon credits to other other countries, other companies that don’t make electric vehicles, and there are some that just don’t make enough or don’t make any at all. So with that thought in mind, and you start thinking, okay, who’s going to make the money on this? Well, the only one who’s going to be making any benefit of this are people that make a lot of money because if you can’t afford gasoline at the pump today, you’re not going to go buy an electric vehicle. People that make over $100,000, up to $300,000 will be allowed to use that $7,500 tax credit to lower the price of the car and car manufacturers can’t afford that. So they’re going to raise the price of the car to offset the difference. Still, they won’t make a profit, but they have to make some sort of cash flow or they can’t stay in business.

SIMONE DEL ROSARIO: THE CAR COACH, LAUREN FIX, THANKS FOR JOINING ME.

LAUREN FIX: Thank you.