The new rules would reduce the number of EVs qualifying for tax credits.
The outcry surrounding recently proposed changes to federal tax credits for electric vehicles sold in the United States shows no sign of letting up. The new bill initially seemed promising as it scrapped the 200,000-unit production cap that had already been surpassed by Tesla and General Motors.
Unfortunately, once we analyzed the new rules in full, we found that only 12 current EVs would qualify, including the Volkswagen ID.4 and Nissan Leaf. Leading carmakers are understandably perturbed but a last-ditch attempt by Ford, Toyota, GM, and others to change the Democrats' proposed bill is underway. These carmakers, along with Stellantis, are currently making their case to lawmakers as the Senate aims to pass the bill in the days ahead.
According to a Bloomberg report citing people familiar with the matter, the automakers need more time to meet the content requirements of the new bill. At the very least, the start of those requirements should be extended by "multiple years".
Smaller companies like Rivian have barely had time to take advantage of the $7,500 tax credit but now many of its vehicles could be ineligible for it entirely. That's because of a price cap of $55,000 for new cars and $80,000 for pickups and SUVs.
"If the legislation is passed as drafted, it pulls the rug out - it cuts Rivian out entirely," said James Chen, vice president of public policy for Rivian, since models like the R1T pickup will cost over $80k for pricier trims. "Congress is throwing up a big stop sign to American-made electric trucks and SUVs."
Another massive limiting factor under the newly proposed bill relates to batteries. After 2023, EVs with battery components made in China or other "foreign entities of concern" will be ineligible for the tax credit. In 2025, that limit expands to include any critical mineral in a battery that is either processed or extracted by these countries. Right now, much of the processing of critical minerals in EV batteries is handled in China. Other restrictions apply to how much an EV buyer earns.
"Unfortunately, after they are implemented, at this point it looks like companies won't be able to use [the credits] in the short run," Senator Debbie Stabenow, a Michigan Democrat who has been instrumental in the negotiations over the credits, said in an interview.
While the rate of EV adoption is increasing, the new bill threatens to severely hamper President Biden's goal of half of all US vehicle sales being EVs by 2030.