WASHINGTON — After months of pressing Congress for an extension of the electric vehicle tax credit, automakers in July unexpectedly got their wish — and the support of make-or-break vote Sen. Joe Manchin.
But what appeared to be a path forward on EV tax credits at first glance evolved into a last-minute scramble, as automakers and some Senate Democrats sought changes to the provision’s strict battery content and assembly rules, which they said could delay vehicle eligibility.
The EV tax credit provision — part of the larger Inflation Reduction Act — was unveiled last month by Manchin and Senate Majority Leader Chuck Schumer, both Democrats, in a breakthrough deal after several failed attempts to move forward on an economic package that would include an extension of the current $7,500 federal EV tax credit.
The Democrats’ revamped credit for consumers buying new battery-electric, plug-in hybrid and fuel cell vehicles would eliminate the 200,000-vehicle-per-automaker cap — a threshold surpassed by General Motors, Toyota and Tesla — but add increasingly stringent requirements on critical mineral and battery sourcing as well as limits on vehicle sticker prices and a buyer’s income.
As of Friday, the spending bill was undergoing a formal review by the Senate parliamentarian. Provisions such as the EV tax credit could be stripped from the bill if they don’t directly affect federal revenue, as required by the budget reconciliation process.
The legislation, which could get a vote by this weekend or early Monday, cannot pass in the evenly split Senate without Manchin, of West Virginia, since Democrats need a simple majority vote, or 50 senators plus the vice president. The bill’s fate also hinges on the support of fellow red-state Democratic Sen. Kyrsten Sinema, of Arizona, who on Thursday signed off on the climate, tax and health care legislation after securing a handful of changes. No Republicans are expected to vote for the bill.
While supportive of Manchin’s goal to reduce dependence on nations including China for critical minerals, automakers represented by the Alliance for Automotive Innovation expressed concern this week that the tax credit’s rules, as proposed, could curtail eligibility in the near term.
“A likely result of this bill — as currently constructed — is that a significant number of consumers will not be able to take advantage of this credit in the early years when it is needed the most,” said John Bozzella, the alliance’s CEO.
Many of the group’s members, which include the Detroit 3, Toyota and Volkswagen, are forming partnerships with battery suppliers and other EV-related companies in North America to develop raw material and EV battery component operations.
“That’s a process that is well underway,” Bozzella said, “but it’s also a change that doesn’t happen overnight.”
The American International Automobile Dealers Association, which represents more than 9,000 international nameplate dealers in the U.S., also warned of the proposal’s eligibility constraints.
“Auto dealers will be left trying to explain to consumers why these incentives aren’t available to them,” Cody Lusk, AIADA’s CEO, said in a Twitter post this week.
Under the proposal, vehicles would be eligible for half of the credit — or $3,750 — if 40 percent of the critical minerals used in the battery are extracted or processed in the U.S. or in a country where the U.S. has a free trade agreement in effect, or from materials that were recycled in North America. Starting in 2024, the requirement rises annually, ending at 80 percent by 2027.
Eligibility for the other half of the credit would depend on whether 50 percent of the battery components are made or assembled in North America. Starting in 2024, the requirement also increases annually, reaching 100 percent by 2029.
Final assembly of the vehicle also must occur in North America — a provision that would apply immediately after the bill is enacted.
Any vehicles with battery components that were made or assembled by entities the federal government deems concerning, such as China, would be ineligible for the credit starting in 2024. Vehicles with critical minerals that were extracted, processed or recycled by those entities would be excluded starting in 2025.
The tax credits would be applied at the point of sale and expire after Dec. 31, 2032.
GM CEO Mary Barra on Thursday, Aug. 4, joined President Joe Biden and other business leaders in a virtual discussion on the benefits of the Inflation Reduction Act. She said the Detroit automaker “deeply appreciates” the inclusion of the EV tax credit.
“While some of the goals cannot be achieved overnight,” she said, “we are confident that the significant investments GM is making in manufacturing, in the work force, in our infrastructure, in supply chains and in clean energy will establish the U.S. as a global leader today and in the future.”
Automakers have privately pushed back on the sourcing requirements and timeline.
The industry has united to see whether Manchin is open to changes, such as expanding sourcing options to countries such as Japan and others within the European Union that the U.S. doesn’t have a free trade agreement with but are still considered allies, according to one industry source familiar with the discussions.
Michigan Democratic Sens. Debbie Stabenow and Gary Peters were also involved in conversations with fellow Democrats and automakers regarding the tax credit.
Stabenow told Reuters that “it’s a very cumbersome, unworkable credit once the full restrictions set in.”
She previously championed a failed proposal that would have boosted consumer tax credits to as much as $12,500 for EVs assembled in a factory represented by a labor union with U.S.-produced batteries.
The current provision “certainly sets a really high bar, and the ramp-up is probably a bit faster than we would have argued for,” said Abby Wulf, vice president of critical minerals strategy at Securing America’s Future Energy.
“Do I think it’s impossible to hit it in 18 months? Probably. But do I think it’s impossible to hit it by five years or even before five years? No, not necessarily,” she said, citing free trade agreement partner Chile, a major lithium processor, as one resource for the industry.
Wulf’s group also is pressing Democrats to make the EV tax credit “more workable” by expanding the list of countries to include NATO members and partners.
Manchin — who questioned the need for an EV tax credit in April — pushed back on concerns that the credit is too aggressive or unusable, telling automakers this week to “get aggressive” and “make sure that we’re extracting in North America, that we’re processing in North America, and we quit relying on China.”
“I was very, very adamant that I don’t believe that we should be building a transportation mode on the backs of foreign supply chains, and I’m not going to do it. We’ve never done that in America,” he told reporters. “We build our own cars. We build our own combustible engines. We’ve done everything. Now all of a sudden, now we can’t? No.”
Todd Malan, chief external affairs officer and head of climate strategy at Talon Metals, said the content requirements are “carefully balanced” and ensure free trade partners as well as American workers at domestic mining and mineral processing plants are part of the EV transition.
“It also recognizes the bipartisan consensus that the domestic production of battery minerals like nickel and lithium is a matter of national security,” Malan said.
Talon Metals is in a joint venture with mining company Rio Tinto on a nickel, copper and cobalt project in Minnesota. The company in January agreed to supply Tesla with nickel from the project for the EV maker’s batteries.
While sourcing remains a challenge for the industry in the near term, the bill does include a $10 billion investment tax credit to build manufacturing plants for EVs, $2 billion to retool existing plants and up to $20 billion in loans to build EV manufacturing plants across the U.S. — “massive benefits” that could be a huge boon to automakers and battery producers and offset some angst over the EV tax credit, Wulf said.
And with the November midterm election fast approaching — potentially resulting in Democrats losing majority control of one or both chambers of Congress — opportunities to pass an extended EV tax credit are dwindling.
“So, if it takes you three, five, six, whatever years, at least you have some years at the end” to receive the credit, she said. “And in the process, we build a more diverse and probably more competitive supply chain.”