Senator Joe Manchin speaks to the media after a hearing on hydrogen pipelines
Thanks to a surprise deal between Sen. Joe Manchin (DW.V.) and Senate Majority Leader Chuck, tax credits for electric vehicles are likely to be a big win for automakers and future electric vehicle buyers. Sumer (DN.Y.).
The pair have been secretly negotiating to restore certain components of the House-passed Build Back Better bill, including climate change provisions, and announced the agreement last week they called it the “Inflation Reduction Act of 2022.” Schumer intends to push the deal under special Senate “reconciliation” rules that allow Democrats to pass it without Republican support as long as all 50 Democrats are on board. Sen. Kristen Sinema, D-Ariz., now seen as the most likely candidate in her caucus, has not yet said whether she would support it.
The deal, if it becomes law, would extend the current $7,500 per car credit until the end of 2032, while making significant changes to it, including income and vehicle price limits and domestic production requirements. It would also create a new $4,000 credit for the purchase of used electric vehicles from dealers, leading to lower income limits and vehicle prices. The changes would generally be a win for middle-class buyers.
The current tax credit of up to $7,500 is phased out after automakers build 200,000 electric vehicles. Tesla
Manchin used to be is seen as an obstacle to raising the cap. He argued that granting the loan would be “ridiculous” given the long waiting lists for some electric cars. But he also hinted at changes he would like to include restrictions on the income of eligible buyers and on the value of the vehicle. The final form of the proposal clearly reflects his priorities. Among other things, it removes a $4,500 bonus credit in the House BBB bill for union-built electric vehicles — a provision that Manchin had is called “wrong” and “not who we are as a country”. (Toyota, Honda and Tesla, which are non-unionized in the US, have openly criticized the measure, and it’s important to note that Toyota has a plant in West Virginia.)
Under current text legislation, couples who file together with a modified adjusted gross income of more than $300,000 in the year they purchased the electric vehicle or in the previous year will not be eligible for the new $7,500 EV credit. The limit will be $225,000 for a person filing as head of household and $150,000 for everyone else (that means singles and married people filing separately). For a $4,000 used car loan, income is limited to $150,000 for joint filers, $112,500 for heads of household and $75,000 for others.
New car loan eligibility is also subject to retail price limits of up to $55,000 for cars and up to $80,000 for trucks, SUVs and vans. The used electric vehicle credit is limited to vehicles costing less than $25,000 and models that are at least two calendar years old.
Joe Britton, executive director of the Zero Emissions Transportation Association, said he expects the price tag restrictions “to be a significant driver of price increases,” although lowering prices may be complicated by some of the other credit requirements.
The current credit is non-refundable, meaning people can only get the full $7,500 if they have at least $7,500 in federal income taxes (this includes income tax withheld, but not Social Security and Medicare taxes help). The new credit, according to Britton, will be reimbursed “in a somewhat roundabout way” as buyers will be able to “transfer the value of that credit to the dealership or the manufacturer and get it [credit amount] removed from the price”.
Britton suggested that dealers might have to verify a buyer’s previous year’s income (and thus credit eligibility) using some kind of quick reference to the Internal Revenue Service. Mortgage companies, for example, usually do this quick income check with the applicant’s permission.
In terms of the new income limits, Britton said ZETA advocates for “universally affordable credit” because “when you shrink credit, you shrink community amenities.” However, he noted that since several domestic producers had reached the maximum credit or were approaching the limit, “the baseline for one step forward was quite low.”
Much of the text in the Lower Inflation Act of 2022 is written to promote domestic manufacturing and avoid dependence on Chinese supply chains. China has become a global force in the electric vehicle industry, selling 1.3 million electric vehicles in 2020, accounting for more than 40% of global sales that year. It has also quickly positioned itself to become a major player in battery manufacturing 85% of the global market for anodes, cathodes, separators and electrolytes — four components that account for about 60% of the cost of a battery cell, according to UBS Group AG.
Although Chinese-made electric vehicles qualify for the current credit, the reconciliation bill would make the credit contingent on the final assembly of the electric vehicle in North America, as well as certain critical minerals and components of the vehicle battery coming from either the U.S. , or a country with which the US has a free trade agreement.
Half of the $7,500 credit is provided that at least 40% of the critical minerals for automotive batteries come from the United States or countries with which the United States has a free trade agreement. The other half is based on at least half of the other battery components coming from the US or one of them 20 countries with which the US currently has a free trade agreement. Demand for both battery components and minerals is growing rapidly each year, with demand for minerals doubling to 80% in 2027 and 100% for battery components in 2029.
The timelines for switching to materials from the US and its free trade partners are “very aggressive” and “will require a clear operation that people will follow quickly,” Britton said. While he believes it may be difficult to avoid extracting minerals and battery components from Chinese companies, “if we do things right and have permitting reforms so that we can achieve these goals, it could be a real win for the country.” .
The president and CEO of Autos Drive America, a group that represents several international automakers and advocates for free trade, said in a statement that international automakers “continue to make investments across the country to increase production of electric vehicles and make them affordable for more Americans.” .
“While we work to understand the full impact of the Clean Vehicle Credit contained in the Inflation Reduction Act of 2022 on the auto industry and consumers, we urge Congress to steer clear of any policy that would deter the production of electric vehicles, hinder consumer adoption, and make it more difficult to achieve our shared climate goals,” said Jennifer Safavian.
In another nod to Manchin, the bill would extend electric vehicle credits to fuel cell vehicles that run on hydrogen. “I’m a big believer in hydrogen because I don’t have to depend on a foreign supply chain to produce the horsepower needed for a carbon-free society as we move toward the transition,” Manchin said during the CERAWeek S&P Global energy conference in March.
Although Sinema (unlike Manchin) was not involved in the negotiations with Schumer, in interviews on Sunday and Monday, Manchin expressed hope that she would not be a hard sell. “She has a lot in this bill,” he told reporters Monday. He said on CNN yesterday that when she “looks at the bill and sees the whole range of what we’re doing and all the energy we’re bringing, all the price cuts and fighting inflation by cutting prices, more energy, hopefully she’ll be positive about this.” And on NBC’s “Meet the Press,” Manchin said Sinema is a friend of his and she had “tremendous input into this legislation.”
