Most electric vehicles are not eligible for the federal tax credit

DETROIT (AP) — Tax credits of up to $7,500 can be used to help pay for electric vehicles under the Inflation Reduction Act, which is pending final approval by Congress. But the auto industry warns that the majority of EV purchases will not qualify for such a large tax deduction.

This is primarily due to the bill’s requirement that electric vehicles must have batteries manufactured in North America using minerals mined or recycled on the continent in order to qualify for the credit. Thing.

And those rules will get tougher over time, and in a few years there could be no tax-deductible EVs, said John, CEO of the Alliance of Automotive Innovation, the industry’s leading trade group. Bozzella said. At this time, the Alliance estimates that approximately 50 of the 72 electric, hydrogen or plug-in hybrid models sold in the United States do not meet the requirements.

“The $7,500 credit may exist on paper, but no vehicle will qualify for this purchase in the next few years.

The idea behind this requirement is to incentivize domestic manufacturing, build a robust battery supply chain in North America, and reduce the industry’s reliance on potentially disruptive overseas supply chains.

China currently has a monopoly on the production of lithium and other minerals used to make EV batteries. The Democratic Republic of the Congo is also the world’s leading producer of cobalt, another component of EV batteries.

Electric vehicles, part of a global effort to reduce greenhouse gas emissions, require metallic elements known as rare earths. According to an Associated Press survey The promotion of green energy leads to environmental destruction.

The tax credit is set to go into effect next year under a $740 billion economic package that passed the Senate over the weekend and is nearing approval in the House. For an EV buyer to be eligible for full credit, his 40% of the metal used in the vehicle’s batteries must come from North America. By 2027, that required threshold will reach 80%.

Automakers and their buyers are eligible to receive half the tax credit of $3,750 if metal requirements are not met.

Another rule requires that half the value of batteries be manufactured or assembled in North America. Otherwise, you will lose any remaining tax credits. These requirements also get tougher each year, and he will eventually reach 100% in 2029. Yet another rule requires that the EVs themselves be manufactured in North America, thereby excluding foreign-made vehicles from the tax credit.

Automakers typically don’t disclose the sources or prices of their components. But Tesla’s Model Y SUV and Model 3 cars, Chevrolet Volt cars and his SUV, and some versions of the Ford Mustang Mach E may qualify for at least some of the credit. All of these vehicles are assembled in North America.

The tax credit only applies to couples earning $300,000 or less or singles earning $150,000 or less. Also, trucks and SUVs with sticker prices over $80,000 or cars over $55,000 are not eligible.

There will also be a new $4,000 credit for purchasers of used EVs, which could help moderate-income households transition to electricity.

According to the industry, the North American battery supply chain is currently too small to meet the requirements of battery components. The measure proposes to expand the list of countries where battery materials are tax deductible to countries that maintain defense agreements with the United States, including NATO members.

Part of the bill requires that from 2024 onwards, no vehicle will qualify for the tax credit if the battery components are made in China. Most vehicles now have some parts sourced in China, the alliance said.

Senator Debbie Stabenow, a Michigan Democrat and a major ally of Detroit automakers, said West Virginia Senator Joe Manchin was a key Democratic voter turnout and tax credit for EV purchases. complained that he was against

“This is a compromise because I have dealt with Senator Manchin many times who frankly did not support any kind of credit,” Stabenow told reporters on Monday. to make it as good as possible for automakers.”

Manchin, long-standing Democrat who negotiated the terms of the deal Along with Senate Majority Leader Chuck Schumer, he blocked previous climate change and social spending proposals.

Manchin’s office declined to comment.

Stabenow argued the bill was written by people who didn’t understand that even though manufacturers were working on it, they couldn’t just flip a switch and create a North American supply chain.General Motors , Ford, Stellantis, Toyota and Hyundai Kia have announced plans to build EV battery factories in the United States.

Stabenow said he hopes the Biden administration will be able to offer tax credits next year while it works out detailed rules for battery requirements.

“We will work with automakers and governments to bring as much common sense into regulation as possible,” the senator said.

A message was left Monday seeking comment from the White House and Treasury Department, which manages the credit.

By this action, Stabenow will: General Motors, Tesla, Toyota, All of these have been capped on previous bills and are no longer available. Ford is also nearing her EV cap, she said.


AP writers Matthew Daly and Fatima Hussein contributed to this report from Washington.