The Inflation Reduction Act of 2022 passed the US Senate on Sunday and heads to the House of Representatives, where it is expected to pass easily. Contains numerous changes to the tax code, meant a lot to prevent the worst effects of climate change.
Among these is a review of the existing tax credit for new plug-in electric vehicles. As we detailed last week, the IRA introduces income limits for the tax credit, and it will only apply to sedans costing less than $55,000 and other electric vehicles costing less than $80,000. The bill also removes the 200,000-vehicle OEM cap on the tax credit, which would benefit both General Motors and Tesla.
At least it will if its EV batteries are made primarily in North America, and at least 40 percent of the materials used were sourced and processed in North America or a country with a free trade agreement. Now, instead of being based on battery capacity, half of the credit ($3,750) is tied to where the pack is made, and the other half to its supply chain. And that’s going to be a problem if you’re looking to buy an EV in 2023.
Automakers and battery companies are beginning to build factories in North America. In addition to the Nevada site of Tesla, GM and LG Chem they’re building batteries in ohio, with Ford and Volkswagen using SK cells made in Georgia. More plants are in the works: Ford and SK are construction plants in Kentucky and Tennesseeto name a couple, with US battery plants also in the works in Stellar Y Volkswagen, among others. Therefore, some electric vehicles may qualify for at least half of the total $7,500 credit, depending on how the battery value is determined.
“Ultimately, a lot will also depend on what guidance the IRS will need to issue. At first glance, it looks like almost no cars will qualify, but some could end up grinding,” Sam Abuelsamid, principal research analyst at Guidehouse Insights. he told Ars. Without knowing more, it’s impossible to be definitive about which electric vehicles will qualify for at least $3,750, but the list may include the Ford Mustang Mach-E, the Locally produced Volkswagen ID.4GM electric vehicles using their new Ultium cells and Teslas using Nevada cells.
But it’s probably easier with respect to the other half of the credit. Even if these domestic battery plants increase the US share of battery manufacturing, at least 40 percent of the critical chemicals that go into those cells must be extracted and processed locally, a percentage that will increase by 10 percent. cent each year.
Right now, North America doesn’t have the capacity to handle that output: about two-thirds of the world’s lithium, much of its cobalt, and almost all of its graphite. are processed in China.
Domestic recycling of lithium-ion batteries will provide a local source of battery materials, and the US contains lithium deposits that have yet to be tapped. Automakers like GM were already trying to source as much as possible locally, but globally there is a race to secure contracts for future productionwhich could limit your options.
Once President Biden has signed the bill into law, it is up to Transportation Secretary Pete Buttigieg to issue guidance on how the new rules will be interpreted. That includes how a person’s income will be determined in the event of a point-of-sale refund and the manufacturing value of a battery.
That has to happen no later than the end of 2022, and there’s no grace period once guidance is issued. But if you have a binding contract to buy a new electric vehicle by the time the law passes, but it hasn’t yet been delivered, should still qualify for the old tax credit.
“Manufacturing tax credits and grant funding will help accelerate the conversion of the national industrial base that is currently underway. Unfortunately, the requirements of electric vehicle tax credits will make most vehicles non immediately eligible for the incentive. That’s a missed opportunity at a crucial time and a change that will surprise and disappoint customers in the new vehicle market. It will also jeopardize our collective goal of 40-50 percent vehicle sales by 2030,” said John Bozzella, president and CEO of the Alliance for Automotive Innovation.