The Inflation Reduction Act EV tax credit may harm sales

Tesla cars charge next to a traditional Texaco gas station on July 17, 2022 in Nephi, Utah. With more electric cars on the road, lack of charging infrastructure is becoming more of a problem for electric car owners.

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Proposed tax credits of up to $7,500 for electric vehicles under the Inflation Reduction Act could be counterintuitive for electric car sales, according to several companies and a group representing major automakers such as General Motors, Toyota Motor and Ford Motor.

The new rules will raise a sales threshold for qualification, but will impose material purchasing and pricing regulations, along with personal income caps.

The federal government has used tax credits for electric vehicles as a tool to promote the use of electric vehicles and reduce the US auto industry̵[ads1]7;s reliance 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 credits to help lower the prices of their vehicles for consumers as the cost of lithium and cobalt needed for batteries has risen.

Opponents of the new guidelines argue that pricing and procurement rules, especially for key raw materials used in the vehicles’ batteries, are too aggressive and could cause most EVs to fall outside of eligibility for the federal incentive, at least in the short term. And unlike current criteria, vehicles must be manufactured 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, especially China, and encourage domestic production of electric vehicles and batteries — a goal of the Biden administration.

The Democrat-led $430 billion inflation reduction bill was passed by the US Senate on Sunday. It is expected to be passed Friday by the US House, before going to President Joe Biden to be signed into law.

“Jeopardy our collective goal”

The Alliance for Automotive Innovation, which represents automakers that make nearly 98% of cars and light trucks sold in the U.S., believes that 70% of electric vehicles currently sold in the U.S. would not be eligible for the tax credits if the bill passes.

“Unfortunately, the tax credit requirements for electric cars will make most vehicles immediately ineligible for the incentive. It’s a missed opportunity at a crucial time and a change that will surprise and disappoint customers in the market for a new vehicle,” John Bozzella, CEO of alliance, said in a blog post.

Workers inspect a Rivian R1T electric vehicle (EV) pickup truck on the assembly line at the company’s manufacturing facility in Normal, Illinois, U.S., Monday, April 11, 2022.

Jamie Kelter Davis | Bloomberg | Getty Images

Bozzella told CNBC that he supports the long-term goals of the bill, but argues that the industry needs more time to make production plans and secure domestic materials for their vehicles. The current supply chain cannot support all the electric cars that companies want to produce in the coming years, he said.

“It’s not going to happen overnight,” he said. “We need to work with our partners and government officials to figure out what will work best for the consumer.”

Bozzella said the new standards “will also jeopardize our collective goal of 40-50% electric car sales by 2030” — a goal announced last year by the Biden administration. He said the Washington, DC-based trade association and lobbying group will continue to push to reform the credit system if the bill is signed into law.

Democratic Senator Joe Manchin, who spearheaded the materials collection requirements included in the bill, has not been open to changing the rules.

“Tell (automakers) to get aggressive and make sure we mine in North America, we process in North America and we draw a line on China,” Manchin told reporters last week. “I don’t think we should build a mode of transport on the backs of foreign supply chains. I’m not going to do that.”

Sen. Joe Manchin, DW. Va., speaks to the cameras about the reconciliation bill in the Hart Senate Office Building on Monday, Aug. 1, 2022.

Bill Clark | CQ-Roll Call, Inc. | Getty Images

Martin French, a long-time supplier manager and managing director of Berylls Strategy Advisors USA, believes the new requirements could be a long-term benefit for the American automotive industry. But he said there could be growing pains along the way.

“I think there is a bit of negativity now, but if you look at what (the carmakers) promise, if they fulfill their commitments, I see no reason why the domestically produced products should not benefit and the consumer should not benefit. “, French told CNBC.

Car manufacturers worried

Automakers decrying the new credits 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 options for Americans and could dramatically slow the transition to sustainable mobility in this market,” said Hyundai, which recently announced $10 billion in US investments including EV manufacturing in Alabama and Georgia . an email message.

Jeep maker Stellantis, formerly Fiat Chrysler, said many provisions in the bill could help the company with its $35 billion electrification plans, but “the practical elimination of short-term incentives for American customers joining the shift to electrified vehicles could threaten the pace of change required to achieve a meaningful transition to sustainable mobility.”

Vehicles from other EV startups such as Lucid’s expensive Air sedan and Fisker’s upcoming Ocean, which will be imported from Austria, will not automatically qualify for the new credits.

Rivian, which began manufacturing electric pickup trucks and SUVs last year in Illinois, has characterized the bill as pulling “the rug out from consumers considering buying an American-made electric vehicle.”

James Chen, Rivian’s vice president of public policy, told Crain’s Chicago Business that the proposed regulations would favor automakers like Tesla and GM, which have had longer to ramp up production or do some manufacturing overseas.

2024 Chevrolet Blazer SS EV


Tesla has not responded for comment. GM declined to speculate on what, if any, of its current vehicles would qualify for credits under the bill. The Detroit automaker said the bill “aligns very well with GM’s long-term plans,” but some of the requirements will be challenging in the short term.

“While some of the provisions are challenging and cannot be achieved overnight, we are confident we can rise to the challenge due to the domestic manufacturing investments we are making to secure a supply chain for batteries and critical minerals,” GM said in an e- postal message. .

Ford CEO Jim Farley said Wednesday that the new credit should be good for the auto industry, but the company continues to analyze details of the bill regarding the purchase of parts and materials.

“We have to work through it, but overall it’s a positive for our industry,” Farley told reporters at an event at Ford’s Michigan Assembly Plant, where the Bronco SUV and Ranger midsize pickup are made.

The company announced Wednesday a new clean energy agreement with DTE Energy for all vehicles manufactured in Michigan to be produced using the equivalent of 100% carbon-free electricity. The companies called the deal the largest purchase of renewable energy by a utility in the United States

French said it will be up to each company to decide how important they think the honor will be to their electric car sales in North America.

“Ultimately it’s a business case on how much market share they feel they want to spend, but I think it will definitely raise eyebrows,” he said. “If there has been any consideration of localizing the production, I think this is going to stir up the discussions and emotions a little more.”

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