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The automakers are pushing Congress to raise the cap on the $7,500 electric vehicle tax credit. Currently, the credit can be used for only 200,000 vehicles per company. However, the carmakers are pushing to have the tax credit extended to anyone buying a qualified EV until the market matures. But environmental groups have criticized the requirement for minerals in batteries. Here’s a quick rundown of the latest developments.
General Motors, Ford, Stellantis, and Toyota lobby for lifting 200,000-vehicle cap on $7,500 electric vehicle tax credit
The auto industry is calling on Congress to lift a cap on the seven-year, $7,500 tax credit for electric vehicles. The auto industry argues that if it wants to continue developing EVs, it must expand its supply of zero-emission cars. They also point out that their investments in electric vehicles total more than $170 billion. The cap on the electric vehicle tax credit is a deterrent to EV development and would hurt consumer choice.
General Motors, Ford, Stellantis and Toyota have lobbied for Congress to lift the EV tax credit cap. General Motors and Ford pushed for a cap because they were the first electric vehicle manufacturers. In the past, they were the first manufacturers to sell EVs, but hit the cap before their rivals. In addition, Toyota’s luxury brand Lexus has a plug-in hybrid called the NX crossover. While GM’s EV sales topped 200,000 last year, its customers still got their money back through April 2020. Toyota has marketed 232 EVs this year, and has recalled several plug-in hybrids.
To encourage the adoption of EVs, automakers such as General Motors, Ford, Stellantis and Toyota have sent a letter to congressional leaders. The automakers contend that the $7,500 tax credit is crucial for the affordable production and sale of electric vehicles. The automakers include Mary Barra, Jim Farley, Carlos Tavares, and John Elkann, who recently lobbied for the credit.
Environmental groups criticize minerals requirement in batteries
Manchin and other lawmakers are drafting a bill to expand the tax credit for electric vehicles. While it would include a requirement for batteries to contain 40 percent minerals, that percentage could increase to 60 percent by 2024. The bill would also mandate that 100 percent of battery components be manufactured in North America by 2029. The bill would tie half of the credit to the mineral requirement, the other half to the battery component mandate.
The Clean Energy for America Act would also require EV batteries to be manufactured in North America and must be crafted in factories owned by union-backed labor. The new rules would require forty percent of the critical minerals used to make the batteries to be produced in countries with free trade agreements, and fifty percent of the value of the batteries would need to be made in the U.S. or Europe. While the proposed legislation is likely to lead to more efficient battery production, environmentalists are concerned that the requirement could restrict consumers’ choice.
In response to this criticism, the German government announced a new plan to require all batteries to contain traceable hardware. This measure is aimed at ensuring that EU firms do not face unfair competition. The new directive is expected to include provisions for reusing or recycling the lithium-ion batteries. The European Commission is assessing the impact of the proposed policy on the industry’s ability to generate the battery market. The outcome of the study could potentially affect the regulations in the EU.
Manchin’s proposal to restructure the $7,500 electric vehicle tax credit
Senate leaders are considering raising the cap on the EV tax credit and imposing new restrictions on automakers in an effort to increase electric vehicle adoption. The proposed changes include a new $4,000 credit for used electric vehicles and a requirement that batteries contain at least half North American components. In addition, the proposed legislation would create billions of dollars in new loans for automobile production and grant programs for battery production, and it would also give incentives to commercial vehicles.
Senate Democrats are also working to modify the EV tax credit. They are hoping to pass it through a reconciliation package that will likely go to the Senate next week. The Senate has reached a deal with House Speaker Nancy Pelosi and President Joe Biden on a package that would provide tax relief for electric vehicles while simultaneously reducing the federal deficit. Manchin’s proposal would change the cap to make sure that the credit only applies to vehicles produced in North America.
The IRA extends the current fuel incentives for electric vehicles for another four years and creates a technology-neutral incentive for domestic clean fuel production in 2025. The incentive level will depend on the life cycle carbon emissions of a fuel, but zero or negative emission fuels will qualify for a maximum of $1.00 per gallon. It also includes a 30% tax credit for commercial operators who purchase electric vehicles. The credit amount is capped at $7,500 for vehicles under 14,000 pounds and $40,000 for larger electric vehicles.