Tesla cars charge next to a traditional Texaco gas station on July 17, 2022 in Nephi, Utah. With more EVs on the roads, the lack of charging infrastructure is becoming an increasing concern for EV owners.
George Frey | Getty Images
According to several companies and a group representing major automakers like General Motors, Toyota Motor and Ford Motor, proposed tax credits of up to $7,500 for electric vehicles under the Inflation Reduction Act could be counterintuitive for EV sales.
The new rules would raise a sales threshold for qualification but impose material sourcing and pricing rules and personal income caps.
The federal government has used EV tax credits as a tool to encourage EV adoption and reduce the US auto industry’s dependence on fossil fuels. Electric vehicles are currently far more expensive than their petrol counterparts due to the expensive batteries needed to power the vehicles.
Automakers have relied on the loans to lower the price of vehicles for consumers as the cost of lithium and cobalt, needed for batteries, has skyrocketed.
Opponents of the new guidelines argue that pricing and sourcing rules, particularly for critical raw materials used in vehicles’ batteries, are too aggressive and could result in most EVs becoming ineligible for the government incentive, at least in the short term. And contrary to the current criteria, vehicles would have to be produced in North America to qualify for the credits.
Supporters of the new rules say they will wean the auto industry from its dependence on foreign countries, particularly China, and encourage domestic production of electric vehicles and batteries – a goal of the Biden administration.
The Democrat-led $430 billion anti-inflation bill passed the US Senate on Sunday. It is expected to be passed by the US House of Representatives on Friday before going to President Joe Biden to sign the bill into law.
“Endanger our common goal”
The Alliance for Automotive Innovation, which represents automakers that produce nearly 98% of the cars and light trucks sold in the U.S., believes that 70% of EVs currently sold in the U.S. will not qualify for the tax credits if the law passes would.
“Unfortunately, due to EV tax credit requirements, most vehicles will immediately become ineligible for the incentive. This is a missed opportunity at a crucial time and a change that will surprise and disappoint customers in the new vehicle market,” Allianz CEO John Bozzella said in a blog post.
Workers inspect on Monday 11th
Jamie Kelter Davis | Bloomberg | Getty Images
Bozzella told CNBC he supports the bill’s long-term goals, but argues the industry needs more time to create production plans and secure domestic materials for their vehicles. The current supply chain cannot support all the electric vehicles companies plan to produce in the coming years, he said.
“It won’t happen overnight,” he said. “We need to work with our partners and officials to figure out what works best for the consumer.”
Bozzella said the new standards “will also jeopardize our collective goal of 40-50% electric vehicle sales by 2030” — a goal announced by the Biden administration last year. He said the Washington, DC-based trade association and lobby group will continue to push for reform of the credit system if the law is signed.
Democratic Sen. Joe Manchin, who cited the materials procurement requirements included in the bill, was not open to changing the rules.
“Tell (the automakers) to get aggressive and make sure we extract in North America, process in North America and put a line in China,” Manchin told reporters last week. “I don’t think we should build a mode of transport on the back of foreign supply chains. I will not do it.”
Senator Joe Manchin, DW. Va., speaks to cameras on Monday, August 1, 2022 about the Reconciliation Act at the Hart Senate Office Building.
Bill Clark | CQ Roll Call, Inc. | Getty Images
Martin French, longtime supplier and managing director at Berylls Strategy Advisors USA, believes the new requirements could be a long-term benefit for the US auto industry. But he said there might be growing pains along the way.
“I think there’s a bit of negativity now, but if you look at what the (automakers) are promising, I see no reason why the domestically made products shouldn’t benefit and the consumer shouldn’t benefit when they make their Fulfilling commitment,” French told CNBC.
car manufacturers affected
Automakers condemning the new loans include companies from EV startup Rivian to larger foreign companies that have yet to produce many, if any, electric vehicles in North America.
“We are disappointed that current legislation severely limits EV access and opportunity for Americans and could dramatically slow the transition to sustainable mobility in this market,” said Hyundai, which recently received a $10 billion US investment including electric vehicle manufacturing in Alabama and Georgia announced an email statement.
Jeep maker Stellantis, formerly Fiat Chrysler, said many provisions in the bill could help the company with its $35 billion electrification plans, but “the virtual elimination of short-term incentives for American customers joining the transition to electrified vehicles.” , could jeopardize the pace of change needed to achieve a meaningful transition to sustainable mobility.”
Vehicles from other EV startups, such as Lucid’s expensive Air sedan and Fisker’s forthcoming Ocean, to be imported from Austria, would automatically not qualify for the new credits.
Rivian, which began producing electric pickup trucks and SUVs in Illinois last year, has characterized the bill as “cutting the ground for consumers who are considering buying an American-made electric vehicle.”
James Chen, vice president of public policy at Rivian, told Crain’s Chicago Business that the proposed rules would benefit automakers like Tesla and GM, which have had more time to ramp up production or produce overseas.
2024 Chevrolet Blazer SS EV
Tesla did not respond to comment. GM declined to speculate what, if any, of its current vehicles would qualify for credit under the bill. The Detroit-based automaker said the bill “aligns very well with GM’s long-term plans,” but some of the requirements would pose challenges in the short term.
“While some of the regulations are challenging and cannot be achieved overnight, we are confident we can rise to the challenge as we make domestic manufacturing investments to secure a battery and critical minerals supply chain,” GM said in a per e-mail sent explanation .
Ford CEO Jim Farley said Wednesday the new loan should be good for the auto industry, but the company is continuing to analyze the details of the bill regarding parts and materials sourcing.
“We have to work through this, but in general it’s positive for our industry,” Farley told reporters during an event at Ford’s Michigan assembly plant, where the Bronco SUV and mid-size Ranger pickup truck are produced.
The company on Wednesday announced a new clean energy agreement with DTE Energy for all Michigan-made vehicles to be manufactured with the equivalent of 100% carbon-free electricity. The companies called the deal the largest renewable energy purchase from a utility in the United States
French said it’s up to each company to determine how important it thinks the loan will be to its sales of electric vehicles in North America.
“At the end of the day, it’s a business case how much market share they think they’re going to take, but I think it’s definitely going to raise eyebrows,” he said. “If there have been considerations to localize the production, I think that will stimulate the discussions and the emotions a bit more.”