Senate Climate Bill Revamps EV Tax Credits, but Automakers Warn It Could Crush Demand

A group representing nearly all of the big, established automakers said most EVs could be excluded under the new rules.

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Senate Climate Bill Revamps EV Tax Credits, but Automakers Warn It Could Crush Demand © Senate Climate Bill Revamps EV Tax Credits, but Automakers Warn It Could Crush Demand

The U.S. Senate passed a $430 billion bill Sunday to combat climate change, including a restructured electric vehicle tax credit system. But the bill also drew criticism from automakers who say the revised credit system would hinder adoption.

The revised plan would keep in place the $7,500 federal tax incentive for EVs and extend that provision for a decade, until 2032, instead of capping automakers by volume. The credit could be applied at the point of sale, an important distinction between the current rules. But other parts of the bill dealing with battery sourcing, assembly location, and more have drawn ire from automakers who said it would delay current EV adoption targets.

The bill dictates that EVs eligible for the full $7,500 must be assembled in North America and have a certain percentage of their battery components be sourced in North America. What's more, the new bill specifically restricts EVs with any Chinese battery components from qualifying after 2023. Starting this year, Volkswagen ID.4 production moved from Germany to Chattanooga, Tennessee likely in response to this sort of policy. However, under the proposed new rules, foreign EVs like the Munich-built BMW i4 eDrive35 won't be eligible despite coming under the $55,000 price cap on cars.

According to Alliance for Automotive Innovation's CEO John Bozzella, the new tax credit requirements make most EVs—70 percent, to be exact—ineligible for the $7,500 incentive. When the provision for battery sourcing is included, which is proposed to take effect in 2029, no EV on sale would qualify for the incentive. As The Verge notes today, most lithium-ion batteries for EVs today are made in China.

The proposed legislation would also put a price limit on eligible EVs: $55,000 for cars like the i4 and Tesla Model 3 (effectively eliminating all dual-motor Model 3s from the benefit) and $80,000 for trucks, vans, and SUVs. Sorry, no subsidized GMC Hummer EVs for you. In addition, families with adjusted gross annual incomes exceeding $300,000 and individuals making more than $150,000 would be ineligible. So while President Joe Biden last August put in place a target for about half of all new cars sold to be EVs, plug-in hybrid, or fuel cell electric by 2030, automakers today say this bill is so restrictive it would hinder that goal.

The bill also involves an incentive for 30% of the cost of a used EV up to $4,000, billions of dollars toward EV production, and $3 billion to the U.S. Postal service to buy electric delivery vehicles and the equipment needed to charge them. The Democrat-controlled U.S. House is expected to take up the bill as early as Friday and could change components, including the sourcing requirements and more.

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