Biden’s electric car tax credit hard to collect: ‘Cuts the rug out from under consumers’ feet’

Billions of dollars set aside in President Biden’s new spending and tax law would reward people who buy electric vehicles, but tax credits may never reach drivers’ pockets.

To make their vehicles eligible for tax credits of up to $7,500, automakers would have to make major changes to how they source and assemble their battery-powered cars and trucks. Indeed, China, one of the main competitors of the United States, controls about 80% of the world’s production of rare earth minerals, which are essential for the production of batteries for electric vehicles.

Democratic lawmakers, environmental groups and the auto industry fear that strict requirements for sourcing most battery materials from North America or free trade partners will make credits unnecessary for the next few years. .

According to John Bozzella, president and CEO of lobby group Alliance for Automotive Innovation, of the 72 electric vehicle models currently on the market, 70% are not eligible, but none will be eligible once the additional requirements come in. fully in force in a few years. Potential electric vehicle buyers have been urged to make their purchases before Mr. Biden signs the legislation to take advantage of current credits.

“We said the incentivized purchase legislation was a missed opportunity, especially while the supply chains for raw materials and batteries are still in place,” Bozzella said. “But Congress has also made significant investments on the supply side.”

Automakers large and small have expressed skepticism. EV startup Rivian Automotive said the timing of battery requirements “cuts the rug to consumers.” General Motors warned that “some of the arrangements are difficult and cannot be accomplished overnight.”

Tax credits are also faced with progress with the international community. The European Union and South Korea have warned that Mr Biden’s tax break for electric vehicles could violate World Trade Organization rules because it discriminates against foreign-made vehicles .

The international trade dispute aside, EV advocates say something is better than nothing in promoting climate-friendly cars, even if the industry has to overcome stringent supply chain caveats. The law, dubbed the Cut Inflation Act, extends tax credits for the next decade and provides more than $15 billion to help domestic battery manufacturing.

“It’s huge. Unfortunately, with this policy, I like to think that with the rose comes the thorn,” said Katherine Stainken, vice president of policy at the Electrification Coalition, during a a virtual forum.

Previously, buyers could only qualify for tax credits if an automaker sold fewer than 200,000 electric vehicles. Major manufacturers like Tesla and General Motors passed that threshold years ago, and others were fast approaching the cutoff. The new law now gives automakers the ability to change how they produce their electric vehicles and re-sell cars and trucks that qualify for the tax credits.

Under the new law, electric vehicles must be assembled in North America and batteries must start coming from the United States or free trade partners. By 2029, 100% of battery components must come from North America.

New EVs that are SUVs, vans or trucks and cost less than $80,000 can receive up to $7,500 in credit. All other EVs must be under $55,000. Individual buyers must earn less than $150,000. Used electric vehicles that cost less than $25,000 are eligible for up to $4,000. Individuals must earn less than $75,000.

Based on Congressional Budget Office projections calculated by Beia Spiller of nonpartisan think tank Resources for the Future, the number of eligible new electric vehicles sold through next year would amount to less than 1% of the roughly 1.3 million sold in 2021. By 2031, only 190,000 total vehicles are expected to be eligible, or around 13% of those sold in 2021 alone.

Electric vehicle prices are already on the rise with announced price increases for new electric vehicles roughly equal to the amount of the tax credit.

Ford is raising the sticker price between $6,000 and $8,500 for its electric vehicles — the F-150 Lightning Pro will sell for $46,974, an increase of $7,000 over last year’s model. Last month, GM raised the price of its electric Hummer by $6,250.

Democrats were forced to include supply chain requirements, income thresholds and vehicle price caps in exchange for vital support from Senator Joe Manchin III of West Virginia to push the bill through. the Senate split 50-50.

Mr Manchin, a conservative Democrat, responded to criticism of the law’s structure by saying it was up to manufacturers to figure out how to end their reliance on China for tax credits.

“Be aggressive and make sure we mine in North America, process in North America and stop depending on China,” he told reporters earlier this month. “I was very, very adamant that I don’t think we should be building transportation on the back of foreign supply chains, and I’m not going to. We’re building our own cars, our own engines at fuel. We’ve done everything. All of a sudden we can’t anymore? No, come on guys. Come on.”

Clean energy advocates have recognized the need to limit the country’s dependence on foreign enemies like China for critical minerals if a conflict ever erupts between Washington and Beijing. But they urged – to no avail – more transition time and expanding the list of countries where components can come from to include NATO members.

Abigail Wolf, who heads the critical minerals division at Securing America’s Future Energy, described the tax credits as a “juicy carrot” for automakers to “create responsible supply chains.”

A potential short-term fix that advocates point to would be for the federal government to offer waivers to smaller manufacturers who would face a greater impediment to expanding their domestic production.

Another is to allow reform to accelerate energy projects of all forms, a contentious policy issue that Democrats have promised Mr. Manchin to undertake in the coming weeks, but which will require the support of Republicans.

“You just can’t get enough of what we need to meet the demand we have now, let alone new demand. It takes about 12 years for a mineral mine to be licensed and set up,” said Frank Maisano, a partner at Washington-based law firm Bracewell, which works with the fossil fuel and clean energy industries. “These are big issues and it’s just part of our national content.”

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