No electric vehicle on the market today is eligible for the new electric vehicle tax credit

Congress is on the verge of approving the newly expanded tax credits for electric vehicles, but the rules are written to effectively disqualify all electric vehicles currently on the market today.

Indeed, most electric vehicles run on lithium-ion batteries which are mostly made in China. The country now has about 76% of the battery market (the United States accounts for only 8%). And to push a deal through a deadlocked Senate, Democrats agreed to provisions that would require eligible vehicles to use North American-made batteries.

The Cut Inflation Act of 2022, which passed the Senate over the weekend in a party vote, would require batteries to have at least 40% material from North America or other countries. a U.S. business partner by 2024 to qualify for $7,500 in tax relief. By 2029, battery components should be 100% made in North America.

Batteries containing minerals that “have been mined, processed, or recycled by a Foreign Entity of Concern,” which is defined as a state sponsor of terrorism or blocked countries by the Treasury Department’s Office of Foreign Assets Control, would not be eligible for credit. China is listed as a “foreign entity of concern” by the federal government.

Democrats, including West Virginia Sen. Joe Manchin, who brokered the deal in secret with Senate Majority Leader Chuck Schumer, are sending a tough message to China this year. But the auto industry says the new requirements would basically disqualify all electric vehicles on the market today.

According to the Alliance for Automotive Innovation, the auto industry’s leading lobby group, there are currently 72 electric vehicle models available for purchase in the United States, including battery-powered, plug-in hybrid and battery-powered electric vehicles. fuel. Of these models, 70% are not eligible for the tax credit when the bill is passed. And by 2029, when the additional supply requirements come into effect, no one would be eligible for full credit.

“The $7,500 credit may exist on paper, but no vehicles will qualify for this purchase incentive for the next several years,” said John Bozzella, president and CEO of the alliance, in a blog post. “This is going to be a major setback to our collective goal of 40-50% electric vehicle sales by 2030.”

Bozzella said the auto industry agrees the domestic supply chain needs serious investment, but not at the expense of customer incentives. Electric vehicles are generally more expensive than regular gas-powered vehicles, and experts say tax credits are needed to boost sales until battery costs are low enough to trigger parity with gasoline-powered vehicles. internal combustion engine.

Automakers could seek waivers from the requirements, given the precedent that has allowed many manufacturers to avoid the “Buy America” ​​rules that were enacted as part of last year’s bipartisan infrastructure law. according Policy. For example, the law requires that new road and bridge projects use locally produced steel, but most states can waive these requirements in favor of buying cheaper steel from abroad.

The Zero Emission Transportation Association, which represents electric vehicle makers like Tesla and Rivian, is not yet seeking a waiver. The lobby group says compliance deadlines could be extended by a year or more to give the industry more time.

It will not be a totally impossible task. Tesla uses local suppliers for the majority of components for its electric vehicles, with 65% of the parts used to manufacture the Tesla Model 3 (Long Range, Standard Range and Performance) coming from the United States and Canada. The electric vehicle maker offers four models that top the annual Automotive Index measuring the amount of US-made content in vehicles.

But it will still be some time before the United States can begin to challenge China’s dominance in the battery market. Ford and South Korean battery maker SK Innovation are spending $11.4 billion on several new factories in Tennessee and Kentucky, while General Motors is planning four new battery factories in the United States with partner LG Chem. Toyota said it would build a $1.29 billion plant in North Carolina. And Stellantis, parent company of Dodge, Jeep and Chrysler, chose Indiana as the site for its first battery plant.

In Europe, Volkswagen aims to have six battery cell production plants operational by 2030. And Tesla has just completed its battery plant in Berlin, which would produce 250 GWh, roughly equivalent to the production capacity current world of battery cells.

Globally, battery production is expected to increase from 95.3 GWh in 2020 to 410.5 GWh in 2024, according to GlobalData, a data and analytics firm.

Republicans, who uniformly oppose the Cut Inflation Act, have tried to make supply chain requirements even stricter. According Politics, Sen. Marco Rubio (R-FL) introduced an amendment that would require 100% of battery materials to be purchased immediately in North America, rather than allowing a transition period. The amendment, however, did not pass the Senate.

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