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.