DETROIT: A tax credit of up to $7,500 can be used to defray the cost of an electric vehicle under the Inflation Reduction Act, which is now headed for final approval in Congress.
But the auto industry is warning that most EV purchases won’t qualify for the enormous tax credit.
This is mainly due to the bill requiring an electric vehicle to qualify for the credit must have a battery with minerals manufactured in North America or mined on the continent.
And those rules become more stringent over time, where in a few years, it’s likely that no EVs will qualify for the tax credit, says John Bozzella, CEO of the Coalition of Automotive Innovation, a leading industry trade group. . Currently, the Coalition estimates that about 50 of the 72 electric, hydrogen or plug-in hybrid models sold in the United States will not meet the requirements.
“The $7,500 credit might exist on paper,” Bozzella said in a statement, “but no vehicles will qualify for this purchase over the next few years.”
The idea behind the requirement is to incentivize domestic manufacturing and mining, build a robust battery supply chain in North America and lessen the industry’s dependence on overseas supply chains that could be subject to disruptions.
China now dominates the production of lithium and other minerals used to produce EV batteries. And the world’s leading producer of cobalt, another component of EV batteries, is the Democratic Republic of Congo.
Under the $740 billion economic package, which passed the Senate over the weekend and is nearing approval in 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 metals requirement isn’t met, the automaker and its buyers would be eligible for half the tax credit, $3,750.
A separate rule would require that half the batteries’ value be manufactured or assembled in North America. If not, the rest of the tax credit would be lost. Those requirements also grow stricter yearly, reaching 100% in 2029. Still, another rule would require that the EV be manufactured in North America, excluding any vehicles made overseas from the tax credit.
Automakers generally don’t release where their components come from or how much they cost. But it’s likely that some versions of Tesla’s Model Y SUV and Model 3 car, the Chevrolet Bolt car and SUV and the Ford Mustang Mach E would be eligible for at least part of the credit. All those vehicles are assembled in North America.
The tax credit would be available only to couples with incomes of $300,000 or less or single people with incomes of $150,000 or less. And trucks or SUVs with sticker prices above $80,000 or cars above $55,000 wouldn’t be eligible.
Stabenow asserted that the bill was written by people who don’t understand that manufacturers can’t simply flip a switch and create a North American supply chain, though they are 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.
Katie Sweeney, executive vice president of the National Mining Association, said that industry leaders “like the requirement that minerals for batteries be sourced close to home rather than from our geopolitical rivals.”
Stabenow said she remains hopeful that the Biden administration can offer the tax credits next year while it works on the detailed rules for the battery requirements.
“We will continue to work with the automakers and the administration on getting as much common sense into 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 credits.