The climate, tax, and healthcare bill passed by the House yesterday includes a tax credit of $7,500 for Americans buying electric vehicles.
There’s just one smallproblem: The vast majority of EVs on the market won’t actually qualify for it. The Alliance for Automotive Innovation, an influential trade group, estimates that 70% of the 72 EV and plug-in hybrid vehicles currently available in the US market will not be eligible for the credit.
Democrats who wrote the bill wanted to accomplish two goals with the EV subsidies: 1) spur electric vehicle adoption to reduce emissions and 2) incentivize automakers to establish more of their supply chains in the US or in allied countries—cutting unpredictable rival China out of the equation.
So, to qualify for the credit, EVs would need to…
- Be assembled in North America—a provision that will kick in immediately after President Biden signs the law.
- Have at least 50% of components in its battery come from North America by 2024, and 100% by 2028. EVS are also going to need to meet new sourcing thresholds for minerals in batteries.
Thing is, many of the materials that go into an electric vehicle, such as rare earth metals, aren’t currently produced at home. They come from places like China, the Democratic Republic of Congo, and Myanmar—places the US isn’t especially keen on trading with going forward.
Short-term pain for long-term gain
The Biden administration thinks automakers are exaggerating the problem, and encouraged them to simply rejigger their supply chains in the next few years in order to comply with the requirements. “Industry is capable of sometimes more than they will at first see,” Transportation Secretary Pete Buttigieg told Reuters, in the same way a parent assures their kid, “Don’t give up on the accordion—you’ll thank me later.”
Plus, some automakers, such as Tesla and GM, have already been investing in production in the US, so they’ll be in a stronger position when the restrictions kick in.
Bottom line: Overall, this bill is seen as a big win for the US electric vehicle industry and green transportation in general because, despite the tax credit kerfuffle, it provides billions in funding for manufacturing in the US and also establishes a new $4,000 credit for used EVs.