Whether consumers like it or not, the federal government’s transition to electric vehicles (EVs) is in full swing, and Democrats have highlighted the recent passage of the Inflation Reduction Act (IRA) as a accelerator of this evolution.
Additionally, the continued pounding of people’s gasoline prices at the pump has boosted consumer interest in electric vehicles to 36%, according to a 2022 consumer report. Thirty-six percent may not sound like a lot, but it’s a significant increase from the 2020 report, which showed interest in electric vehicles at four percent.
Yet one of the barriers to increased adoption of electric vehicles is price. July 12, Kelly Blue Book reported that the average cost of an EV was over $66,000. The price of an average gasoline vehicle was $43,942, a difference of $22,000.
To help combat the above and increase EV adoption, Democrats have proposed new electric vehicle tax credits in the IRA, and the tax credits came into effect on August 16. .
Since the passage of the IRA, however, details of EV credits have come to light, and some experts point out that new EV credits exclude low-cost EVs and could disappear altogether in 2023.
Indeed, economy-priced EVs from Toyota and Hyundai are now ineligible for EV tax credits, while Audi’s Q5 PHEV and BMW’s 330e are eligible for up to $7,500, for the moment.
Why? Democrats tied EV credits to an “assembled in North America” requirement, and in 2023 that includes the battery.
Assembled in North America
Before the IRA came into effect, there were around 72 electric vehicles eligible for a tax credit, according to the professional group Alliance for Automotive Innovation.
Now only 16 2022 model year personal vehicles are eligible for the federal tax credit, and only three 2023 models are eligible, according at the Department of Energy (DOE). If you are looking for a commercial vehicle, two 2022 vehicles are eligible.
The average manufacturer’s suggested retail price is $54,897 for eligible 2022 base models. This price does not include taxes, fees or other surcharges, exchanges or rebates.
Additionally, only two base models on the list are under $36,000, five are between $43,000 and $47,650, and the other nine are between $51,000 and $87,400.
However, as of January 2023, no EVs or PHEVs are eligible for tax credits, reports Alliance for Automotive Innovation.
“The $7,500 credit may exist on paper, but no vehicles will qualify for this purchase incentive in the next few years. This is going to be a major setback to our collective goal of 40-50% electric vehicle sales by 2030.”
In the IRA, Senate Democrats added a $4,000 consumption tax credit for low- and middle-income earners for the purchase of used “clean vehicles” and up to $7,500 tax credit for the purchase of new ones “clean vehicles”. The new vehicle credit is capped at $150,000 for a single person and $300,000 for a married couple.
Additionally, effective January 1, 2023, the previous cap of 200,000 cars is gone, allowing Tesla and GM vehicles to qualify for a tax credit (they had previously sold over 200,000 vehicles and reached the limit).
The $7,500 IRA tax credit might sound great if you’re considering buying an electric vehicle. But, the IRA’s assembly stipulation in North America means that most previously eligible electric vehicles are no longer eligible.
Additional provisions come into effect on January 1, 2023. They include the requirement that EV battery components contain a certain percentage of minerals from North America or a country with a free trade agreement with the United States. United.
Additionally, most batteries must be manufactured or assembled in North America.
“It is going to be a huge burden and an obstacle to overcome. We don’t have the mining, we don’t have the critical minerals we need in North America or our free trade partners, and almost 90% of the refining is done in China,” Carla Bailo , CEO of the Center for Automotive Research, told NPR.
Domestic manufacturing push
On February 22, the Biden administration admitted that the United States is increasingly dependent on China to refine “cobalt, lithium, rare earths and other critical minerals” for electric vehicle batteries. China controls about three quarters of the market.
According to Biden, this dependency poses a threat to “national and economic security”. To fight it, he released a statement saying that the United States would increase domestic production and move away from its dependence on China.
Additionally, on July 28, 2021, Biden issued a notice of proposed rulemaking, which directed an amendment to the Buy American Act.
“The Buy American Act states that products purchased with taxpayers’ money must be ‘virtually all’ made in the United States. However, today, products could qualify if only 55%…of the value of their components were made here. The NPRM proposes an immediate increase in the threshold to 60% and a gradual increase to 75%.
The above EV tax credit requirements in the IRA are part of Biden’s domestic manufacturing push.
Indeed, Biden declared that the IRA “will support American workers with targeted tax incentives aimed at manufacturing American-sourced products such as batteries, offshore solar and wind components, and technologies for carbon capture systems.”
Yet John Bozzella, president and CEO of the Alliance for Automotive Innovation, declared: “We share the goal of increasing domestic capacity and supply, but the requirements must be an incentive for industrial base change, not inaccessible and punitive for consumers.
He added: “A more phased phase of battery component, critical mineral and final assembly requirements – which better reflect current geopolitical, supply and mineral extraction realities – will preserve the credit of millions of Americans. and keep the country focused on building domestic supply chains capable of supporting our future of electrified transportation.
Bozzella pointed out that while efforts to reduce US dependence on China are important, neither the US nor its allies are currently able to meet demand.
If Democrats and the Biden administration insist on keeping tax credit requirements for electric vehicles, that could have a big impact on the 40-50% EV sales goal in 2030, Bozzella concludes.
Bozzella’s point is important when considering Consumer Reports investigation, which found that half of respondents said they were unaware of federal and state tax incentives. Consumer Reports noted that knowing about this benefit “could inspire someone to buy an electric vehicle.”