An electric vehicle tax credit included in landmark US climate legislation comes with an asterisk: Later this decade, there will be years when not a single car qualifies for the $7,500 subsidy.
The looming hiatus for the tax credit can make electric vehicles less affordable, at least temporarily, as the Biden administration aims to steer Americans away from internal combustion engines. It reflects an effort to promote low-carbon transportation while encouraging domestic manufacturing of battery-powered cars.
The law signed by President Joe Biden last week immediately requires that any electric vehicle sold in the US must be assembled in North America to qualify for the credit. The requirements become more stringent in 2024, when eligible electric vehicles must have battery components that have not been manufactured or assembled “by a foreign entity of interest,” which includes China, the top battery producer.
By 2025, those batteries must exclude “critical minerals” mined, processed or recycled from the same foreign countries. An increasing share would have to be from North America or selected trading partners.
Under the North American Final Assembly Rule, the administration released a list of 21 models eligible for credits for the remainder of 2022. According to the Alliance for Automotive Innovation, a group of manufacturers, 72 EVs are available for sale in the US. USA
Imminent limits on battery components and minerals will further shorten the list. “If the Treasury Department interpreted the law, strictly as it is written, in my opinion, it would disqualify all vehicles,” said Jay Turner, a professor of environmental studies at Wellesley College who researches the role of batteries in the clean energy transition. .
A Treasury official said changes to the tax credit will strengthen U.S. clean energy supply chains and the nation’s energy security, adding that the department hoped a range of credit-eligible vehicles would be available to customers. beginning in 2023, even when the provisions related to batteries take effect. in 2024 and 2025.
No one is predicting that the US electric vehicle market will stop in the face of new domestic manufacturing requirements. The US auto industry was largely supportive of the new law, formally known as the Reducing Inflation Act. Ford, which has announced $14 billion in American investment in electric vehicles and batteries, was among the supporters.
“While its electric vehicle consumer tax credit goals cannot be achieved overnight, the bill is an important step toward meeting our shared national climate goals and helping strengthen American manufacturing jobs.” the Michigan-based automaker said.
One reason is that electric vehicle sales have continued to grow even under the previous tax credit system, in which the incentives stopped once a manufacturer sold more than 200,000 electric vehicles, as happened to the leader of the Tesla industry in 2018. Also, that 200,000-vehicle cap will be lifted in early 2023.
Sales of electric vehicles in the US increased from 319,554 in 2019 to 656,845 in 2021 and are projected to rise to more than 1.2 million in 2022, according to BloombergNEF, a clean energy research group.
“Many electric vehicle buyers today are buying [them] knowing they’re not likely to get a federal tax refund” because of sales limits, said Seth Goldstein, an analyst at Morningstar.
The law extends tax credits for electric vehicles through 2032. By then, 30 percent to 50 percent of electric vehicles could qualify, said Colin McKerracher, an analyst at BloombergNEF, who said the law would provide “a significant boost” to the US electric vehicle market
Bernard Swiecki, director of research at the Center for Automotive Research, said the law was positive for the transition to electric vehicles in the US. However, he said some consumers risked being left out of the market if the tax credit didn’t. was available for the cars they wanted to buy.
“My big question is: Will automakers who produce vehicles that don’t qualify lower prices to at least partially offset [the absence of a tax credit]?” she asked. Swiecki noted that Tesla and General Motors lowered prices once their sales hit the 200,000-vehicle limit.
Imminent restrictions on the origin of battery components and minerals weigh heavily on US industry.
China refines 73 percent of the world’s cobalt, 68 percent of its nickel, 59 percent of its lithium, and 40 percent of its copper, making it the “dominant global player in mineral refining.” strategic,” according to a Brookings Institution report. .
China also makes most of the world’s mineral-rich battery cell components, including 70 percent of the cathodes, which increase the amount of power a battery can deliver. The nation’s dominance in mineral refining and battery manufacturing means it plays a role in the production of every electric vehicle currently sold in the US, experts said.
Senator Joe Manchin, a Democrat whose support was instrumental in the approval of the bill, had been outspoken against China-based supply chains. “I am going to do everything I can to stop it because it seems stupid to me, because we are not capable of protecting our investments in the country,” he said in June.
The “Manchin staff got carried away by the [manufacturing] targets they were trying to set” instead of setting ones that “will be too difficult to meet” in the timeline set by law, said Dennis Blair, a former director of national intelligence under US President Barack Obama who now chairs Safe, a energy body. security organization.
More expensive electric vehicles would mean “less energy security for the country” in the short term, Blair said.
Although the Alliance for Automotive Innovation reported that automakers have invested more than $100 billion to expand electric vehicle production in the US, “there’s no way the supply chain is going to catch up with us” in the US. next two years, said Mike Ramsey, an analyst at Gartner. .
But he and other analysts don’t think the rollout of electric vehicles in the US will be hampered by restrictions on the tax credit, mainly because consumers have shown they’re willing to shell out for electric vehicles.
That Tesla has been able to gain such a large market share “without access to the tax credit really tells you that making vehicles that consumers actually want to buy is even more important than making vehicles that qualify for the tax credit,” McKerracher said.