There Are Some Unfortunate Exceptions to the Expanded EV Tax Credit

Some exceptions to the expanded EV tax credit would limit who is eligible—both customers and automakers.
Written by Andrew Kidd
Reviewed by Kathleen Flear
Aug 24, 2022
Buying an
electric car
might be easier if a new EV tax credit passes—with some exceptions.
The Inflation Reduction Act of 2022 is set to cement a $7,500 incentive for
consumer electric vehicles
and a $40,000 subsidy for buyers of heavy-duty commercial electric vehicles like semi-tractor trailers.
As
Automotive News
reports, the proposed tax credit would do away with the current sales limit of 200,000 electric vehicles per automaker, at which point the automaker would no longer be eligible for the incentive. 
Tesla,
GM
, and Toyota will benefit directly from this, as they already surpassed that sales threshold.
But there are a few important caveats.

Strict sourcing and assembly requirements

The catch for many automakers is that for their vehicles to be eligible for this tax credit, they'd have to adhere to stricter sourcing requirements for minerals and battery components. 
What that means is they'd be required to limit their sourcing to countries with a free trade agreement with the U.S., including Canada and Mexico.
It's a move to force the U.S. automotive industry to end its reliance on China where it currently sources many of these vital components.
The proposal also establishes a 2024 deadline for 50% of battery minerals to be acquired from U.S. sources, from another country with a free trade agreement, or from a battery recycling venture in North America. 
By 2025, the proposal would require 60 percent of battery components to be made in North America.
That number jumps to 80% after 2026, with 2029 requiring 100% North American provenance for battery components.
Another
provision
requires automakers to complete the final assembly of electric vehicles in North America to qualify for tax credits for their vehicles. Instead of a timeline, this one takes effect immediately after signing.

Will this hurt the electric vehicle industry?

That's what they're saying will happen in the short term; automakers have banded together to denounce the strict sourcing requirements in favor of something more beneficial and amenable to their bottom lines.
The
Alliance for Automotive Innovation
's John Bozzella wrote in a blog post that the bill would disqualify 72 consumer EVs currently on the market from the incentive.
"While we work to unlock supplies of critical minerals and ramp up battery production at home, we can’t currently meet the demand for these materials on our own," Bozzella writes. "That’s the reality. Partnerships with friends and allies in North America and beyond will be necessary."
The organization then calls for the government to expand the definition of "eligible countries" for battery component sourcing, citing collective defense arrangements as precedence, such as with other members of the North Atlantic Treaty Organization.
While the organization laments what it calls the impending inability of Joe Average to
afford
a new EV without the incentive, it doesn't mention how it would affect automakers' bottom lines when it comes to electric vehicle sales.

Why the sourcing requirements?

Because as the COVID-19 pandemic, armed conflicts, and political turmoil have demonstrated over the past few years, the current global supply chain can be unstable, unpredictable, and overly dependent on relatively inexpensive labor in nations the U.S. is at political odds with.
American automakers, in particular, are heavily reliant on Chinese firms for much of their battery sourcing needs, which governments fear could be used as economic leverage in the future.

Pricing protection and used EV incentives

Another provision in the proposed bill would limit the suggested retail price to $80,000 for new electric SUVs, pickup trucks and vans while passenger cars would be limited to $55,000. 
It also limits who is eligible for the credit based on gross income; joint filers making more than $300,000 are ineligible, as are heads of household earning $225,000 and single filers earning $150,000.
The bill would also grant a $4,000 tax credit for certain used electric vehicles, as well as a credit for some commercial vehicles.
Want to save even more? Electric vehicles can be more costly to insure than their gas-powered cousins. 
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