Most electric cars will not qualify for a federal tax credit

DETROIT (AFP) – A tax credit of up to $7,500 could be used to defray the cost of an electric vehicle under an inflation-reducing law now heading toward final approval in Congress.

But the auto industry warns that the vast majority of electric vehicle purchases will not qualify for a tax credit of this size.

This is mainly due to the bill’s requirements, to qualify for credit, an electric vehicle must have a battery made in North America with minerals mined or recycled on the continent.

And those rules get tougher over time — to the point where, within a few years, it’s possible that electric cars won’t be eligible for the tax credit, says John Bosella, chief executive of the Automotive Innovation Alliance, a major industry trade group. As of now, the alliance estimates that about 50 of 72 electric, hydrogen, or hybrid models sold in the United States will not meet the requirements.

“The $7,500 credit may be on paper, but no cars will be eligible for this purchase for the next few years,” Bozella said in a statement.

The idea behind the requirement is to stimulate domestic manufacturing and mining, build a robust battery supply chain in North America and reduce the industry’s dependence on potentially vulnerable external supply chains.

China now dominates in the production of lithium and other metals used in the production of electric car batteries. The Democratic Republic of the Congo is the world’s leading producer of cobalt, another component of electric vehicle batteries.

Although electric cars are part of a global effort to reduce greenhouse gas emissions, they require metallic elements known as rare earths, found in places like Myanmar, where an Associated Press investigation found The push for green energy is destroying the environment.

Under the $740 billion economic package, which the Senate passed over the weekend and is nearing approval in the House, the tax breaks will take effect next year. For electric vehicle buyers to qualify for the full credit, 40% of the minerals used in a car battery must come from North America. By 2027, this required limit will reach 80%.

If the mineral requirements are not met, the automaker and its buyers will be eligible for half of the tax credit, $3,750.

A separate rule requires that half the value of batteries be manufactured or assembled in North America. If not, the rest of the tax credit will be lost. These requirements are also getting tougher each year, eventually reaching 100% in 2029. Another rule requires that the electric vehicle itself be manufactured in North America, thus excluding any vehicles made abroad from the tax credit.

Automakers generally don’t release the source or cost of their components. But some versions of Tesla’s Model Y SUV and Model 3, Chevrolet Bolt and SUV and Ford Mustang Mach E will likely qualify for at least a portion of the credit. All of those vehicles are assembled in North America.

The tax credit will only be available to married couples with an income of $300,000 or less or single people with an income of $150,000 or less. Any trucks or SUVs with a sticker price of more than $80,000 or cars of more than $55,000 will not be eligible.

There’s also a new $4,000 credit for used electric car buyers, a term that could help families with modest incomes switch to electric.

The industry says the battery supply chain in North America is currently too small to meet the demands of battery components. It has suggested that the measure expand the list of countries whose battery materials would be eligible for tax credit for countries that have defense agreements with the United States, including members of NATO.

A component of the bill would require that after 2024, no vehicle will be eligible for a tax credit if its battery components come from China. Most of the vehicles now have some parts from China, the alliance said.

Senator. Debbie Stabeno, a Michigan Democrat and a major ally of Detroit automakers, complained about the Moon. Joe Manchin of West Virginia, in a crucial Democratic vote, opposed any tax credits for electric car purchases.

“I went with Senator Manchin who frankly didn’t support any kind of credit, so that’s a compromise,” Stabbino told reporters on Monday. “We will work through it and make this as good as possible for our automakers.”

Manchin, the longtime holdout Democrat who negotiated the terms of the deal With Senate Majority Leader Chuck Schumer, previous social spending and climate proposals blocked.

Manchin’s office declined to comment. He told reporters last week that he wants automakers “to get aggressive and make sure we’re extracting in North America, we’re processing in North America and putting a line on China. I don’t think we should build transportation on the backs of foreign supply chains. I won’t.”

Stabenow emphasized that the bill was written by people who don’t understand that manufacturers can’t simply flip a switch and set up a North American supply chain, even though they’re working on it. Several automakers, including General Motors, Ford, Stellantis, Toyota and Hyundai Kia, have announced plans to build electric battery plants in the United States.

Katie Sweeney, executive vice president of the National Mining Association, said industry leaders “like the requirement to get minerals for batteries close to home and not from our geopolitical competitors.”

She said, “Doing so directly supports high-paying jobs here in the United States…that secures our supply chain and really enhances our global competitiveness.”

Stabeno said she still hopes the Biden administration can introduce the tax credits next year while it works on the detailed rules for battery requirements.

“We will continue to work with automakers and management to get as much common sense into the regulations as possible,” the senator said.

Letters were left on Monday asking for comments from the White House and the Treasury Department, which will manage the appropriations.

Stabeno says she is pleased the measure will restore tax credits to General Motors, Tesla and Toyota, All of these caps are under a previous invoice and can no longer be submitted. She said Ford is also getting closer to the roof of the electric car.

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Authors Matthew Daly and Fatima Hussein contributed to this report from Washington.

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