DETROIT (AP) – A tax credit of up to $7,500 could be used to cover the cost of an electric vehicle under the inflation-mitigating bill, which is now nearing final approval in Congress.
However, the auto industry warns that the vast majority of electric vehicle purchases are not eligible for such a large tax credit.
That’s largely because of the bill’s requirement that, to qualify for the credit, an electric vehicle must contain a battery built in North America using minerals mined or recycled on the continent.
And those rules will get stricter over time — to the point where it’s possible that EVs won’t be eligible for the tax credit in a couple of years, says John Bozzella, CEO of the Alliance of Automotive Innovation, a major trade group in the automotive industry industry. As of now, the alliance estimates that about 50 of the 72 electric, hydrogen or plug-in hybrid models sold in the US would not meet the requirements.
“The $7,500 loan may exist on paper,” Bozzella said in a statement, “but no vehicles will qualify for this purchase for the next several years.”
The idea behind the requirement is to incentivize domestic manufacturing and mining, build a resilient battery supply chain in North America, and reduce the industry’s reliance on overseas supply chains that could be subject to disruptions.
The production of lithium and other minerals used to make EV batteries is now dominated by China. And the world’s leading producer of cobalt, another ingredient in electric vehicle batteries, is the Democratic Republic of the Congo.
Though electric vehicles are part of a global effort to reduce greenhouse gas emissions, they require metallic elements known as rare earths, found in places like Myanmar, where an Associated Press investigation has found that the push for green energy has led to environmental destruction.
The tax credits would take effect next year as part of the $740 billion stimulus package that passed the Senate over the weekend and is about to be approved in the House of Representatives. For an EV buyer to be eligible for full credit, 40% of the metals used in a vehicle battery must be sourced from North America. By 2027, this required threshold would reach 80%.
If the metal requirement is not met, the automaker and its buyers would be entitled to half of the tax credit, $3,750.
A separate rule would require that half the value of the batteries be manufactured or assembled in North America. Otherwise, the rest of the tax credit would be lost. These requirements are also getting stricter each year, eventually reaching 100% in 2029. Another rule would require the electric vehicle itself to be manufactured in North America, thereby excluding all foreign-made vehicles from the tax credit.
Automakers generally don’t disclose where their components come from or how much they cost. But it’s likely that some versions of Tesla’s Model Y SUV and Model 3, the Chevrolet Bolt car and SUV, and the Ford Mustang Mach E would get at least some of the credit. All of these vehicles are assembled in North America.
The tax credit would only be available to couples earning $300,000 or less or singles earning $150,000 or less. And any truck or SUV with sticker prices over $80,000 or cars over $55,000 would not be eligible.
There’s also a new $4,000 loan for used electric vehicle buyers, a provision that could help modest-income households switch to electric vehicles.
The industry says the North American battery supply chain is currently too small to meet battery component requirements. It has suggested the measure expands the list of countries whose battery materials are eligible for the tax credit to include nations that have defense agreements with the United States, including NATO members.
Part of the bill would stipulate that after 2024, no vehicle would be eligible for the tax credit if its battery components originated in China. Most vehicles now have some parts sourced in China, the alliance said.
Sen. Debbie Stabenow, a Michigan Democrat and a leading Detroit automaker ally, complained that West Virginia Sen. Joe Manchin, a critical Democratic voice, opposed tax credits for electric vehicle purchases.
“I’ve gone back and forth with Senator Manchin, who honestly hasn’t supported any loans, so this is a compromise,” Stabenow told reporters Monday. “We will work through it and make it as good as possible for our automakers.”
Manchin, long a reclusive Democrat who negotiated the terms of the deal with Senate Majority Leader Chuck Schumer had blocked previous proposals on climate and social spending.
Manchin’s office declined to comment. He told reporters last week he wanted automakers to “get aggressive and make sure we’re extracting in North America, processing in North America and pressuring China. I don’t think we should build a mode of transport on the back of foreign supply chains. I will not do it.”
Stabenow claimed that the bill was written by people who don’t understand that manufacturers can’t just flip a switch and build a North American supply chain, even though they’re working on it. Numerous automakers, including General Motors, Ford, Stellantis, Toyota and Hyundai-Kia, have announced plans to build battery plants for electric vehicles in the United States.
Katie Sweeney, executive vice president of the National Mining Association, said industry leaders “like the requirement that minerals for batteries be sourced close to their home country and not from our geopolitical rivals.”
“Doing that,” she said, “directly supports high-paying jobs here in the United States … secures our supply chain and really improves our global competitiveness.”
Stabenow said she remains hopeful that the Biden administration can offer the tax credits next year while it works on detailed rules for battery requirements.
“We will continue to work with automakers and the administration to inject as much common sense into the regulations as possible,” the senator said.
Messages were left on Monday seeking comment from the White House and Treasury Department, which would administer the loans.
Stabenow is pleased that the measure would restore tax credits for General Motors, Tesla and Toyota, all of which have capped under a previous bill and can no longer offer them. Ford, too, she said, is approaching an EV cap.
AP contributors Matthew Daly and Fatima Hussein contributed to this report from Washington.