EV Tax Credit Requirements

Under the Inflation Reduction Act, which is now being debated in Congress, a tax credit of up to $7,500 may be used to offset the cost of an electric vehicle.

However, the car industry warns that the great majority of EV purchasers will not qualify for such a hefty tax credit.

This is mostly due to the bill's requirement that an electric car be produced in North America with minerals mined or recycled on the continent in order to qualify for the credit.


And those standards get more strict over time, to the point where no EVs may qualify for the tax credit in a few years, according to John Bozzella, CEO of the Alliance of Automotive Innovation, a key industry trade group. Currently, the alliance believes that around 50 of the 72 electric, hydrogen, or plug-in hybrid cars available in the United States would fail to fulfill the standards.

“The $7,500 credit might exist on paper,” Bozzella stated in a statement, “but no vehicles will qualify for this purchase over the next few years.”

The rule is intended to encourage domestic manufacturing and mining, to develop a strong battery supply chain in North America, and to reduce the industry's reliance on international supply lines that may be disrupted.

China now dominates the production of lithium and other minerals required in the production of EV batteries. The Democratic Republic of the Congo is also the world's biggest producer of cobalt, another component of EV batteries.

Though electric vehicles are part of a global effort to reduce greenhouse gas emissions, they require metallic elements known as rare earths, which can be found in places such as Myanmar, where an Associated Press investigation discovered that the push for green energy has resulted in environmental destruction.

The tax credits would go into effect next year under the $740 billion economic plan, which cleared the Senate over the weekend and is nearing House passage. To qualify for the full credit, an EV buyer must get 40% of the metals used in the vehicle's battery from North America. By 2027, the needed level would have risen to 80%.


If the metals criterion is not fulfilled, the automaker and its purchasers will only be able to claim half of the tax credit, or $3,750.

A separate rule would mandate that half of the value of the batteries be manufactured or assembled in North America. Otherwise, the remainder of the tax credit would be forfeited. These criteria are likewise becoming more stringent by the year, with the goal of achieving 100% by 2029. Another proposal would demand that the EV be built in North America, disqualifying vehicles manufactured elsewhere from the tax credit.

Automobile manufacturers seldom reveal where their components come from or how much they cost. However, some variants of Tesla's Model Y SUV and Model 3 vehicle, the Chevrolet Bolt car and SUV, and the Ford Mustang Mach E are expected to be qualified for at least a portion of the credit. All of the automobiles are built in North America.


The tax credit would be accessible exclusively to couples earning $300,000 or less, or to singles earning $150,000 or less. Furthermore, any trucks or SUVs costing more than $80,000 or automobiles costing more than $55,000 would be ineligible.

There's also a new $4,000 credit for used EV buyers, which might assist low-income households switch electric.

According to the industry, the North American battery supply chain is now too small to handle the battery component requirements. It has recommended that the proposal broaden the list of countries whose battery materials are eligible for the tax credit to include states that have defense treaties with the US, including NATO members.

After 2024, no car would be eligible for the tax credit if its battery components came from China, according to one provision of the plan. According to the alliance, most automobiles now have some parts supplied in China.

Sen. Debbie Stabenow, a Michigan Democrat and a key supporter of Detroit automakers, grumbled that Sen. Joe Manchin of West Virginia, a key Democratic vote, had voted against any EV tax credits.

“I went round-and-round with Senator Manchin, who frankly didn’t support any credit of any kind, so this is a compromise,” Stabenow advised reporters Monday. “We’ll work through it and make this as good as we can for our automakers.”

Manchin, a long-standing Democrat who brokered the arrangement with Senate Majority Leader Chuck Schumer, had previously vetoed climate and social spending plans.

Manchin's office did not respond to requests for comment. Last Monday, he told reporters that he urges automakers to, “get aggressive and make sure that we’re extracting in North America, we’re processing in North America and we put a line on China. I don’t believe that we should be building a transportation mode on the backs of foreign supply chains. I’m not going to do it.”


Stabenow claimed that the law was drafted by individuals who don't understand that firms can't just flick a switch and build a North American supply chain, despite their efforts. GM, Ford, Stellantis, Toyota, and Hyundai-Kia are among the automakers that have declared intentions to establish EV battery plants in the United States.

The National Mining Association's executive vice president, Katie Sweeney, stated that industry leaders “like the requirement that minerals for batteries be sourced close to home rather than from our geopolitical rivals.”

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


Stabenow expressed optimism that the Biden administration will be able to issue the tax credits next year while working out the details of the battery requirements.

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

The White House and the Treasury Department, which would administer the credits, were contacted for comment on Monday.

Stabenow is glad that the law restores tax credits for General Motors, Tesla, and Toyota, who all reached limitations under a prior bill and can no longer give them. Ford, she claims, is also nearing an EV ceiling.

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