The number of electric vehicles that get tax credits could be slashed by new rules

The Latest Tax Credits for Zero Emission Vehicles: Comments on the Senate Budget and the Commission on the Study of the Electrified Vehicle Tax Credit

When the Treasury Department released the last set of rules back in January, just 37 EV models qualified for the credit (about 40 percent of the 91 EV models for sale today), according to the Alliance. This latest update is expected to whittle that list down even more.

But key lawmakers aren’t content to wait. The bill introduced earlier this year by the senator was related to the EV tax credit and would return the credit if an EV doesn’t meet strict battery requirements.

It’s a difficult task that could take years to accomplish. The number of zero emission vehicles American taxpayers can purchase under the plan will be reduced.

Senior Biden administration officials said that the new requirements will make it very hard for consumers to take advantage of the new tax credits.

Biden-ev Tax Credits Explained Climate: The Million-dollar Question During the Road Race to Get an EV and Its Implications for Automakers

The critical mineral requirement mandates a certain percentage of the value of the critical minerals that power EV batteries – like lithium, nickel, graphite and copper – must be extracted or processed in the United States, or a country that it has a free-trade agreement with. The minerals could have also been recycled in North America. The battery component requirement mandates that a certain percentage of the value of the battery components must be manufactured or assembled in North America.

It could take a long time to build the American-dominated supply chain that Manchin wants, though they have embraced it. Automakers have said that the bill was good for the US auto industry, and it is already encouraging them to build out their operations in the country and hire thousands of new workers.

The timeline is “really the million-dollar question,” said Thomas Boylan, a former Environmental Protection Agency official and the regulatory director for the EV trade group Zero Emission Transportation Association.

Boylan said that there is time left in the race and electric vehicles still are too expensive for many people to purchase. He thinks that consumers who want to buy an EV but need tax credits to help pay for it may not want to wait many years to get their car.

We don’t know yet. Senior administration officials refused to share an estimate of the number of cars that may be eligible for the new rules. The number will be much lower than 21.

Carmakers will also specify which EVs qualify. Ford Motor Company President and CEO Jim Farley said in a statement that the company would “help our customers determine whether they’re eligible to receive incentives,” and noted that it would share more information “soon.”

The clearest impact on consumers will be the reduced number of vehicles eligible for credits starting April 18. The rule will remove some cars that are currently eligible. It takes months or even years to move a factory and supply chains from one country to another, but with free trade agreements in place, more cars will be added to the list.

Source: https://www.cnn.com/2023/03/31/business/biden-ev-tax-credits-explained-climate/index.html

Implications of the Critical-Minimum Rule for Autonomous Vehicles, Electric Car Sales, and Other Autonomy Goals

The requirements will go up over the course of several years. For critical minerals, the percentage will start at 40% in 2023 and ramp up each year to 80% by 2027. For battery components, the percentage will start at 50% and ramp up each year to 90% by 2028.

The auto industry has been urging the Biden administration to consider free trade agreements that could include mineral agreements with the European Union and Japan. And indeed, the Treasury Department listed more than 20 countries, including Australia, Canada, Mexico, and South Korea, as free trade agreement countries that qualify under the critical minerals rule. Japan was added as well in an agreement “containing robust obligations to help ensure free trade in critical minerals,” the department said.

But experts and officials say that the start of the critical mineral supply chain – mining and refining critical minerals – will be the most difficult aspect to change. China has a tight grip on it. The US only has a few lithium mines in Nevada. There are companies vying to be the first to start mining around California’s Salton Sea.

The Department of Energy “can give a loan to build a battery manufacturing facility,” Boylan said. It is not the same as talking about permitting an open-pit lithium mine.

But the complex rules are also designed to incentivize U.S.-based production, to build up a domestic clean-vehicle supply chain and reduce reliance on China.

In the short term, those goals are in tension. After all, if the only goal were to increase electric car sales it would be easier to do it without any limitations on production.

The Treasury Department’s Role in Preparing for the Implications of a New Rule of the IRA for Autonomous Vehicles

Those tensions are coming to the fore again as the White House prepares to belatedly implement a key rule of the IRA: A requirement that a certain percentage of battery minerals and components be sourced from North America or a U.S. trade partner.

On Friday, the Treasury Department laid out how it will implement those requirements and how it will give guidance on how to decide if a car qualifies.

On April 18, the Internal Revenue Service will release an updated list of which vehicles are still eligible for the tax credit, based on the new guidance.

There were limits added to last year’s climate law, and are already in effect. Cars under $55,000 and SUVs under $80,000 must be built in North America to be eligible. There’s also an income cap for buyers ($150,000 adjusted gross income, for an individual).

That’s because the supply chain for EV batteries has historically been dominated by China, and while companies are racing to build mines and battery plants in the U.S., it will take years for those efforts to pay off. It’s not yet possible to buy large amounts of minerals and components in the U.S.

The federal government is also giving other incentives for electric vehicles and domestic manufacturing, from loans and tax credits to charging infrastructure.

The head of the Alliance for automotive innovation thinks some vehicles will be eligible for a partial tax credit.

He said that the Treasury Department approached the regulations well. “Treasury has done its part by making rules that meet the statute and reflect the current market,” he wrote on Friday.

Reply to Senator Joe Manchin’s Controversy on the EV Tax Credits and the Treasury Department’s Implications

The supply chain-focused requirements were added at the behest of the influential Sen. Joe Manchin from West Virginia, a critical Democratic vote in a closely divided Senate.

Manchin has publicly expressed frustration with the implementation of the EV tax credits, which have been available for three months without the government forcing the batteries to be made from renewable sources.

He was also frustrated that the Treasury Department interpreted the restrictions as only applying to vehicle purchases (leased vehicles can get an EV tax credit without any income caps, price caps or sourcing requirements).

For the battery sourcing guidelines, the exact definition of terms has been the subject of fierce debate in recent months, with automakers, mining companies, battery-makers, the Biden administration and Manchin all taking positions on things like the meaning of “processing” versus “manufacturing,” a significant distinction in these tax credits.

Manchin said before the release of the requirements that he was willing to go to court if the Treasury tried to liberalize the rules with more relaxed standards.

And on Friday, Manchin responded to the Treasury’s release of the guidelines with a blistering press release, saying the new guidance “completely ignores the intent” of the law he helped craft, while calling it “a pathetic excuse to spend more taxpayer dollars as quickly as possible.”

China alone accounts for some 70 percent of the global supply of battery cells. Lawmakers say that the IRA is intended to level the playing field by removing American battery dependency off of China and creating US jobs in the EV sector. Car companies, their suppliers and their partner companies are working to increase US battery plants.

It is not possible to get a credit for batteries that contain minerals from countries or states that are considered to be Sponsors of Terrorism by the Treasury Department. China is a foreign entity that the government is concerned about.

Bozzella said it was possible that some EVs could be eligible for a partial credit. “Given the constraints of the legislation, Treasury’s done as well as it could to produce rules that meet the statute and reflect the current market,” he said.

Meanwhile, many automakers are resigned to the fact that they are losing the tax credit. The rear-wheel drive versions of the Model 3 sedans could be ineligible under the new guidance because of the fact that the battery comes from China.