‘Inflation Reduction’ deal extends electric car tax credits

A breakthrough deal between Sens. Chuck Schumer and Joe Manchin includes the extension of a popular consumer tax credit for the purchase of electric vehicles, a big win for EV makers like General Motors, Tesla and Toyota.

The credit is included in a broader legislative package that revives key portions of President Joe Biden’s domestic political agenda and contains about $369 billion on climate and energy spending. 

The proposed legislation would allow carmakers to continue offering $7,500 in tax credits for the purchase of new “clean cars” with some conditions:

  • Vehicles will need to be built with minerals that are extracted or processed in a country the U.S. has a free trade agreement with.
  • Vehicles must have a battery that includes a large percentage of components that were manufactured or assembled in North America. 
  • For the first time, buyers can claim the credits as discounts at the point of purchase rather than waiting to claim them on their taxes.
  • For the first time, used clean-energy vehicles will be eligible to receive $4,000.
  • A prior requirement that qualified vehicles must have plug-in electric drive motors is dropped.
  • The prior 200,000-vehicle per manufacturer cap would be dropped. Tesla, GM and Toyota have exceeded that threshold; Ford and Nissan are close behind. 
  • The deal caps the suggested retail price of eligible vehicles at $55,000 for new cars and $80,000 for pickups and SUVs.
  • The maximum price for an eligible used vehicle would be capped at $25,000.
  • Credits would be capped to an income level of $150,000 for a single filing taxpayer and $300,000 for joint filers for new vehicles.
  • For used cars, the income levels would be capped at $75,000 and $150,000, respectively. 

The policies “will ensure that America builds the core technologies of the 21st century here at home, and it will allow us to win the global clean transportation race,” the Zero Emission Transportation Association, an industry group that advocates for a faster switch to electric models, said in a statement.

Biden’s package “doubles down on supporting American workers, and puts us in the driver’s seat to win the global clean energy race,” Senator Debbie Stabenow, a Michigan Democrat who has pushed for the new policies, said in a message posted to Twitter. 

EV supporters have argued the tax credits are necessary to spur development of the nascent plug-in car market, which is seen as crucial to reduce the use of fossil fuels and achieve Biden’s ambitious climate goals. If passed, the package would help replenish existing tax credits that have already been exhausted for some automakers. 

Manchin and Schumer have staked out starkly different positions on the viability of electric cars. Schumer has called for all cars that are manufactured in America to be electric by 2030, while Manchin has called the idea of the federal government subsidizing EVs “ludicrous.”

A prior Biden administration proposal suggested allowing unionized carmakers to offer an additional $4,500 to EV car buyers, but the provision was opposed by Manchin after facing strong blowback from companies such Tesla and Toyota, who argued it would have given an unfair advantage to their Detroit-based rivals. 

Carmakers sold a record 652,000 electric vehicles last year, but they made up only 4.4% of new car sales, according to an analysis by BloombergNEF. The percentage doubled from slightly over 2% in 2020. SUVs and pickup trucks comprised about 70% of total 2021 sales, according to Kelley Blue Book, showing the industry still has a long way to go before it comes close to achieving widespread adoption of EVs. 

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