Electric vehicle tax credits will be back for popular brands if the law is passed

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  • The inflation reduction law of 2022 currently under discussion in Washington would spend $369 billion on climate change and energy security, including big changes to electric vehicle tax credits. If it passes, of course.
  • What matters to car buyers is that there would be more money for more electric vehicles: the 200,000 limit per automaker, which GM, Tesla and Toyota have already reached, would be over. Used vehicles would also be eligible for a $4,000 credit, for the first time.
  • The bill would also encourage automakers to use batteries sourced and assembled in North America, limiting the value of importing electric vehicles from China. It would also establish requirements for what electric vehicles are eligible, with price and component origin among the criteria.

    The surprise political revival of parts of the Build Back Better plan brings with it the potential for massive federal action on climate change, drug costs and corporate taxes. Now billed as the Cut Inflation Act of 2022or IRA, the bill would reduce the federal deficit by more than $300 billion, according to President Joe Biden.

    It’s the estimated $369 billion in the IRA that addresses climate change and energy security spending that will have a direct effect on the vehicles we buy and drive. The text of the bill is not yet final, and the Senate has not yet voted on it, but we can at least look at what would change in the automotive world if it passed as is. Here is a summary of how the IRA would affect the lives of car buyers. In short, middle- and low-income buyers benefit, as do automakers who build their electric vehicles in North America.

    Changes for Buyers

    The biggest change for the auto industry is that the IRA is revamping how federal electric vehicle tax credits work. Currently, the credits can only be applied toward the purchase of a new electric vehicle and are limited to 200,000 qualifying purchases per automaker before the credits, with a maximum value of $7,500 per vehicle, do begin to disappear.

    Under the IRA, the credits would not be tied to any car manufacturer, but would continue for all eligible electric vehicles until December 31, 2032. This change obviously helps General Motors, Tesla and Toyota the most, as these are the three automakers that have either already run out of tax credits or are phasing them out. President Biden pointed out in remarks on the bill that the qualifying factor for a $7,500 tax credit is “if these vehicles were made in America.”

    Car buyers could also get the credit as a rebate at the time of sale, either as a down payment or as a price reduction, instead of having to wait until their taxes are filed.

    The bill also sets upper income limits on who can get the credit. Anyone earning more than $150,000 per year (single filer) or a family earning more than $300,000 would not be eligible. There will also be limits on the cost of a vehicle to qualify, with the upper price limit for vans, trucks and SUVs now set at $80,000 MSRP while all other vehicles are limited to one price. of $55,000.

    For the first time, used electric vehicles would be eligible for a rebate of $4,000 or 30% of the sale price of the vehicle, whichever is lower. The maximum price for an eligible used electric vehicle is $25,000 and it must be at least two years old. Income limits also exist for used sales, but are set at $75,000 (single filers) and $150,000 (joint filers).

    The bill also changes the definition of the types of vehicles that can benefit from the credit, moving from a “plug-in electric motor vehicle” to a “clean vehicle”, opening the door to hydrogen or other types of groups. powertrains to be considered the same as battery electric vehicles solely from a federal tax credit perspective.

    Changes for manufacturers

    Finally, and it will take time to come into force, the bill requires automakers to use “critical minerals” for their batteries that have been mined and processed in North America or a country with which the United States have a trade agreement. The bill requires eligible clean vehicles to use a minimum amount of these minerals, starting at 40% for vehicles put into service before January 2024, then increasing by 10% per year to reach 80% for vehicles put into service. service after December 31. 2026. Similarly, all eligible clean vehicles must have their battery components manufactured or assembled in North America on a similar increasing scale, starting at 50% for vehicles put into service before January 1, 2024 and reaching 100% from of 2029. Expect to hear about many more battery gigafactories sprouting up in the US if it becomes law.

    As for the politics of the bill, since the bill was revived through an agreement with Majority Leader Chuck Schumer (D-NY) and Sen. Joe Manchin (D-WV), it There is hope on Capitol Hill that the bill will pass with all 50 Democratic senators voting in favor, allowing Vice President Kamala Harris to vote to break the tie if all 50 Republicans vote against, as expected. Schumer said last week he would put the IRA to a vote this week.

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