Billions of dollars set aside in President Biden’s new spending and tax law would reward people who buy electric vehicles, but the tax credits are in jeopardy of never reaching drivers’ pockets.
To make their vehicles eligible for the tax credits of up to $7,500, automakers would have to make major changes to how they source and assemble their battery-powered cars and trucks. That’s because China, one of America’s chief competitors, has a stranglehold over roughly 80% of the production of the globe’s rare earth minerals that are critical in producing EV batteries.
Democratic lawmakers, green groups and the auto industry fear that stringent requirements for sourcing most battery materials from North America or free trade partners could render the credits useless over the next few years.
Of the 72 EV models on the market today, 70% are ineligible but none will qualify once additional requirements go into full effect in a few years, according to John Bozzella, president and CEO of the lobbying group Alliance for Automotive Innovation. Potential EV buyers were urged to make their purchases before Mr. Biden signed the legislation into law to take advantage of current credits.
“We’ve said the legislation’s purchase incentive was a missed opportunity, especially while raw material and battery supply chains are still coming into place,” Mr. Bozzella said. “But Congress also made some meaningful investments on the supply side.”
Large and small automakers alike have expressed skepticism. EV startup Rivian Automotive said the battery requirements timeline “pulls the rug out from consumers.” General Motors warned that “some of the provisions are challenging and cannot be achieved overnight.”
The tax credits also face headways with the international community. The European Union and South Korea warned that Mr. Biden’s EV tax break could violate World Trade Organization rules because it discriminates against foreign-made vehicles.
International trade dispute aside, EV advocates argue that something is better than nothing in promoting climate-friendly cars, even if the industry must overcome stringent supply chain caveats. The law, dubbed the Inflation Reduction Act, extends the tax credits for the next decade and offers more than $15 billion to help domestic battery manufacturing.
“This is huge. Unfortunately, with this policy, I like to think that with the rose comes the thorn,” Katherine Stainken, vice president of policy at the Electrification Coalition, said during a virtual forum.
Previously, buyers could only receive tax credits if an automaker sold less than 200,000 EVs. Large manufacturers like Tesla and General Motors burned through that threshold years ago, and others were fast approaching the cutoff. The new law now offers automakers a chance to change how they produce their EVs and once again sell cars and trucks that qualify for the tax credits.
Under the new law, EVs must be assembled in North America and batteries must begin to be sourced from the U.S. or free trade partners. By 2029, 100% of battery components will need to come from North America.
New EVs that are SUVs, vans or trucks and cost less than $80,000 can receive up to $7,500 in credit. All other EVs must be less than $55,000. Individual buyers must make less than $150,000. Used EVs that cost less than $25,000 are eligible for up to $4,000. Individuals must make less than $75,000.
Based on Congressional Budget Office projections crunched by Beia Spiller of the nonpartisan think tank Resources for the Future, the number of qualifying new EVs sold through next year would equate to less than 1% of the roughly 1.3 million sold in 2021. By 2031, only 190,000 total vehicles are expected to qualify, or roughly 13% of those sold in 2021 alone.
The prices of EVs are already on the rise with just announced price hikes for new electric vehicles that roughly equal the amount of the tax credit.
Ford is raising the sticker price between $6,000 and $8,500 for its electric vehicles — the F-150 Lightning Pro will sell for $46,974, a $7,000 increase from last year’s model. GM last month raised the price of its electric Hummer by $6,250.
Democrats were forced to include the supply chain requirements, income thresholds and vehicle price caps in exchange for the vital support of Sen. Joe Manchin III of West Virginia to get the bill through the 50-50 split Senate.
Mr. Manchin, a conservative Democrat, responded to criticism of the law’s structure by saying it’s up to manufacturers to figure out how to end their reliance on China to qualify for the tax credits.
“Get aggressive and make sure that we’re extracting in North America, that we’re processing in North America and that we quit relying on China,” he told reporters earlier this month. “I was very, very adamant that I don’t believe we should be building transportation on the backs of foreign supply chains, and I’m not going to do it. We build our own cars, our own combustible engines. We’ve done everything. All of a sudden now we can’t? No, come on guys. Come on.”
Clean energy advocates acknowledged the need to limit the country’s dependence on foreign foes like China for critical minerals if conflict ever arises between Washington and Beijing. But they encouraged — to no avail — for more transition time and to expand the list of countries that components can be sourced from to include NATO members.
Abigail Wolf, who heads the critical minerals division at Securing America’s Future Energy, described the tax credits as a “juicy carrot” for automakers to “create responsible supply chains.”
One potential short-term solution advocates point to would be for the federal government to offer waivers to smaller manufacturers that would face a greater barrier to ramping up their domestic production.
Another is permitting reform to fast-track energy projects of all forms, a contentious political issue that Democrats promised Mr. Manchin they will undertake in the coming weeks but that will require Republican support.
“You just can’t get enough of what we need to meet the demand we currently have, let alone new demand. It takes approximately 12 years to get a minerals mine permitted and in place,” said Frank Maisano, a partner at the Washington-based law firm Bracewell who works with fossil fuel and clean energy industries. “These are big problems and these are just a sliver of our domestic content.”
