EVs are a hot button topic right now, both in the automotive world and in the broader political milieu. In the U.S., tax credits and subsidies have begun to shape the marketplace, with an eye toward easing the industry’s transition to battery-electric vehicles. The measures have been one of the main planks of the Inflation Reduction Act, and now, they could soon be seeing a major revision.
It’s the juicy $7,500 tax subsidies for EV buyers that are presently at stake. From January, buyers will be able to get that grand sum knocked off the price of a car at participating dealerships, rather than having to wait to claim the credit on their tax return down the line.
However, according to new reports from the Wall Street Journal, the Biden administration could be announcing specifics on how the subsidies are applied today. The Act notes that buyers will not be able to claim the credit for cars that use battery materials from a “foreign entity of concern.” The phrase refers to a number of nations not allied to the U.S., with China the primary one of concern with regards to automotive production. Exactly how the Act defines which cars are and aren’t eligible based on foreign content hasn’t been entirely clear thus far.
The interpretation of the Act’s wording will be key to the fortunes of many automakers. The idea was to encourage automotive companies to establish domestic supply chains for batteries and their raw materials. Presently, China dominates the supply of many raw materials crucial to EV and battery production. SupplyChainDive states China output 79% of the world’s graphite supply in 2021, and refined 73% of the world’s cobalt supply.
“A lot rides on how exactly the Treasury Department defines this rule insofar as it applies to the ability of car manufacturers to use parts from Chinese corporations in their supply chains,” read a note from analysts at research firm Beacon Policy Advisers. For automakers, therein lies the rub. It’s presently not clear what level of Chinese parts or material contribution would disqualify a vehicle from the valuable subsidy program.
Chinese state-owned firms are major global suppliers of battery materials and EV components. For vehicles relying on batteries, parts, or materials that are sourced from these state-owned operations, it’s believed that subsidies will not be available. The situation quickly grows more complex in other cases, however. Some companies are based in the U.S. or other non-Chinese states, but have some level of ownership by private Chinese companies. Whether their involvement could taint a vehicle’s eligibility for tax credits remains a question that the administration is yet to answer.
The timeline for these rules going into effect is rapidly approaching. In 2024, automakers will see subsidies cut for EVs that use battery components from unapproved foreign entities. Following on in 2025, the sourcing of raw minerals will also be subject to the same scrutiny. Presently, regardless of the specific restrictions implemented, it’s expected that the number of EVs eligible for credits will drop in the short term.
It comes at a time when EV demand has cooled off a little, with electric cars sitting longer on dealer lots over the summer versus their ICE-powered counterparts. Uncertainty around subsidies won’t do much to help that, nor will the higher prices on cars that are no longer eligible under the scheme.
However, it’s sure to be a boon for those automakers that can get their cars in under the wire, with a sudden $7,500 gap to their rivals. At this stage, it’s not yet clear where the chips will fall. Ford may find itself in a tight spot, as its new battery factory in Michigan is being built with technology licensed from Chinese battery firm CATL. September saw Ford hit pause amidst the political uncertainty, later resuming in November. GM, meanwhile, has been cheering for a very narrow interpretation of the rules, as it doesn’t have the same ties to Chinese companies for its EV and battery production.
The timing of this comes as Democratic Senator Joe Manchin has announced his retirement. This is key because Senator Manchin was the main supporter of the IRA and has been a key swing vote in the Senate. He’s been clear he doesn’t want to make getting these credits any easier for automakers, but with him abandoning his Senate seat it’s less important to appease him.
These rules could lead to a major expansion in US mining and battery manufacturing. Alternatively, they could lead to complicated corporate structures and agreements built to meet the letter of the law, if not the grander intention behind it. In any case, automakers, investors, and eager EV buyers will all be watching closely to see how the rules shake out once the government clarifies exactly how it’s all going to work.
Image credits: GM, Ford
The Biden administration will do the thing that they believe most helps them get re-elected. If they cared about climate change, there would not be origin restrictions.
So with that in mind, they need to appeal to Michigan, Georgia, Arizona, Pennsylvania, and Wisconsin. Michigan and Georgia are building battery factories with the Chinese and Koreans so expect them to allow joint ventures with minority foreign ownership. Also watch for a backdoor deal to strongly encourage them to unionize.
Manchin put in the origin restrictions.
In the big scheme of things, these types of tax credits are a bad idea. Besides redistributing taxpayers money, it’s the Fed picking winners and losers. Taking the free market out of the equation
So would you support a Carbon Tax? That captures the externality of dealing with climate change in the sales price of ICE vehicles and other more strongly carbon-emitting products and services.
If it comes to that, a carbon tax makes more sense.
“Fee Market” is idealistic. The fossil fuel industry has benefited from federal subsidies forever. Free market is also driven by greed and that wont solve the climate crises. Government action is necessary.
The GM lady’s hair makes me nervous. A factory floor doesn’t seem like a safe place to keep your hair unprotected.
My impression all along is that the EV tax credits, or whatever they are becoming, were about industrial policy and not about giving away money to people who can afford new cars. I also think overall that that’s a good thing.
It’s a way to subsidize the existing wasteful automotive paradigm. Keep the SUVs/CUVs/trucks getting bigger and push more of them at all costs, in the name of endless growth and short term profit maximization. The industry has no capability to weather a situation where consumers are tapped out and can no longer “afford” to keep juggling increasing debt burdens around.
I agree about the size issue and think that getting rid of the tax rebate for overly large vehicles would be a good idea, but I think the biggest issue is to get the infrastructure for EV’s going and by that I mean lower the cost of batteries and get a charging network up and running. Until EV chargers are as common as gas pumps people are going to be freaked out about range and what big battery packs. Until the charging situation is fixed It’s still a chicken and egg situation.
I think we need to settle for one paradigm at a time.
Agnostic of political party, the EV tax credits will be increased and the criteria will be loosened sometime before or after the election is my prediction. I don’t see the made in NA changing much, but the income limits as most of the potential buyers are above the stupid low limits, just get rid of the income restrictions. I would consider a 2nd EV today if not for the limits, it’s not about who gets the credit as much as supporting the idiotic EV industry if they want it to succeed.
I hope they don’t do away with the income limits – leave them where they are or possibly peg them to a cost-of-living index to account for geographical differences. At least where I’m at, if you’re making more than $150k single or $300k married, you really don’t need the subsidy and as EV adoption increases, it will become even more important to make sure that the subsidy is going to those who need it to avoid the overall cost ballooning more quickly
It’s all gov’t funny money who cares, if they truly cared about meeting their EV goals, then to help the industry succeed as fast as possible less restrictions is better. Regardless of the “climate change” initiative, which EVs will never solve.
But a married couple making 301k that pays about $50k+ in fed taxes compared to a married couple making $100k that pays perhaps $0 in fed taxes. Opinions vary on who and why they should get the credit.
It isn’t funny money though, and when its treated as such it is equivalent to turning a blind eye to the rich making themselves richer and poluting more and more at everyone elses’ expense. The current income limits aren’t really the issue (and this isn’t a criticism of you or your post either), its the entire attitude from both sides around the severity of the problem and how much effort and cost we need to be prepared to endure as a civilization to survive it. Fundamentally, those with more resources, such as those in the US in general and the top earners in the US specifically, need to shoulder a much greater amount of the burden.
While EVs won’t solve climate change on their own, greater adoption of them is a large piece of the puzzle and at this point we need to be working on all the pieces. E-fuels to have an impact with the existing light and heavy-duty fleet as well as hard-to-electrify cases like flights, EVs where possible to better make use of renewable energy like solar & wind, daily load-shifting facilities to temporarily store renewable energy generated in the middle of the day for use in the evenings and overnight, CO2 capture to try to bring down atmospheric levels, a CO2-based financial market that taxes emissions and rewards sequestration,
Finally, greater taxation percentage on those who make more is absolutely necessary to avoid leaving the majority of the worlds population behind in squalor, unable to afford to live in a world growing increasingly hotter with more extreme weather. We’re already at 1.2 to 1.4C hotter global-averaged temperatures than the pre-industrial period, and while that doesn’t seem like much, most scientists agree that 1.5C represents a tipping point. Even if stopped emitting CO2 today, the elevated levels already in the atmosphere would likely cause the global average temperature rise to stabilize at 3-7C hotter than pre-industrial levels. We’re in the middle of a huge ramp with a lot of inertia continuing to carry us up, even if we stop actively emitting right now. It’s just the thermal inertia of the planet, the seas, and ice at the poles slowing things down and as that heats up and melts, we’re going to keep seeing more sea-level rise, more frequent and severe weather events, more pandemics, more plant and animal migrations and die-offs, less food production capacity, more mass refugees as people flee famine, drought and coastline destruction… and thats if we can avoid a situation where we force the planet into runaway warming through release of CH4 & CO2 from permafrost melting, a lower global albido from less reflective ice and snow coverage etc.
Just because the people earning more money are paying more taxes doesn’t mean that they should be entitled to the same breaks as those making less. They are in a position to do more to help this world that we’ve damaged, and must be impelled to contribute more so that we still have a planet that can sustain us and many of the other species we take for granted in a century.
“Just because the people earning more money are paying more taxes doesn’t mean that they should be entitled to the same breaks as those making less.”
From my perspective, that statement makes no sense. Like I said opinions vary on the topic, but my belief is the opposite. Like anything, if you are not in that situation it’s easier to side against it. It’s basically discrimination based on income, if one think that’s fair, the so is income inequality from a wealthier perspective.
Regardless the point is to help the EV industry as a whole with less restrictions on the credits.
I can get it anyway through the lease back door. If they remove that loophole OMG EVs are going to fail even worse.
So to avoid income discrimination, should everyone pay a fixed percentage of their income in taxes, regardless of their income? Or would it be a fixed dollar amount per person? Should everyone be eligible for food stamps too?
The wealthy already hold the vast majority of the political and economic power and generally don’t seem to care the least bit about addressing income inequality (and consistently act to increase it), so I’d say that condition already exists and is in dire need of some rectification.
The reason why taxes are such a fight for wealthier individuals is the majority of tax revenue is paid by them and disqualified from all the benefits. Child tax credit nope, EV credit nope, reduced home improvement or energy credits, etc, plus add all the deductions you can not take because they are too small a portion of your income.
If someone only took things from you and gave you nothing, how would you feel?
If that is the way you view the impact of government on your life, then I understand the feelings thus engendered, but it’s also a heavily biased view of the factors that enabled the generation and preservation of that wealth, discounting the amount that you profit from the health and prosperity of the people contributing to and soliciting your product, the financial and political stability of the economy that you participate in, and the reliability and services provided by the infrastructure you exist in. The more wealth a person has, the more likely they are to have significantly benefited from all of those things and thus should be more obligated to contribute to them as a bet on future success, instead of adopting a “take what you can get right now” attitude.
Not saying I don’t support that to some extent, just giving perspective, but aside from millionaires/billionaires, those paying say $50k+ in fed taxes (not counting SS, MC, etc), its give a whole lot and get no direct benefit vs those who give nothing and get everything. I imagine anyone that moves up the income ladder over time would be a little jaded, when we lost the child tax credit was eye opening. Which was about the same time working on govt social services programs and uncovering the fraud and abuses.
Since the beginning of this country the income inequality has always been great, sorry it’s never going to change if it feels like take and no give.
The EV struggles right now would perhaps not be as bad if there was no income restrictions on the credit. Think of the impact and goodwill, you get none of these possible 10 tax benefits, but this time you can get the EV credit.
Yikes
I like EVs, have 2 of them, but have come around to the notion that if a new product is to truly supplant and existing one, it needs to be better than the existing one. EVs are better in a lot of ways, less maintenance, good performance, if you can charge at home that works well, but not totally superior to gas cars or trucks or bikes.
So it’s like the early days of PDAs, only geeks or those with extra cash bought them, they were slow, software was buggy, wifi sketchy, and then the iPhone comes along and wipes them all out. Except nobody was subsidizing PDAs.
I’m not sure we’ll get our iPhone moment of cars if we keep subsidizing. I don’t think it’s Tesla as they are expensive, quality can be sketchy, repairs aren’t really a thing, it’s not going to be the $60k Blazer. Maybe it’d be a China-Mexican BYD? I guess that fits as the iPhone is Chinese too.
My guess is that this gets loosened for another year since the US just doesn’t have the capacity to make the required numbers of cells needed. It’s being built right now. The other factor is that demand needs to be there to keep the C-suite folks interested. Right now it’s not since prices are too darn high. Domestic production will help greatly. But to get that, something has to give.
If it were a straight rebate, it would probably only help a little. You’re still dealing with high transaction prices for the most part. The $30k Chevy Bolt seems to have little problem moving despite a customer needing to wait for their rebate.
AFAIK, Bolt customers never received a rebate, but like buyers of other EVs, they got the possibility of a tax credit. Which only means something IF the buyer actually has at least $7,500. worth of tax liability (taxes owed) in the year they purchase their EV.
I point this out not to be pedantic, but rather to clarify: there’s a world of difference between a rebate (where you get some money back at or after purchase) and a potential credit (where you might reduce your tax liability if certain criteria are met).
Which is something that confuses me about the ‘new’ tax credit system stating on January 1st. It’s still referred to as a ‘tax credit’ though the amount is deducted from the purchase price of the EV at the time of purchase (and the dealer gets reimbursed for it by the gov’t). This would seem fine if it actually WERE a rebate, but if it’s still actually a potential tax credit, what happens if the buyer DOESN’T owe at least $7500. worth of unpaid taxes that year?
In that case, I assume the buyer will have to reimburse the gov’t for the credit, which will be quite the bummer. 🙁
The simple work-around is to use the minimum of either the buyer’s tax liability from the previous year or $7500, possibly with an option for those expecting a greater liability in the current year to estimate that or get the full $7500 and need to pay any difference back at tax time.
Yes, moving taxable income between two adjacent years (when possible… it’s easier for self-employed people to do that vs. those who get a regularly scheduled paycheck) could help lump more liability into the year of the EV purchase. However, that still requires that the buyer owes at least $7,500. in federal taxes if they want to be able to use the entire EV credit. That’s hardly a given for folks earning in the mid-five-figures annually, even though those are the people who could really use/benefit from the EV credit. The six-figure-income folks (who are more likely to have at least $7,500. in annual liability) don’t need the credit as much as those earning half as much.
Or do I misunderstand what you’re saying Peter?
PS: my original point was that IMO it’d be much better if the $7,500. were an actual rebate instead of a tax credit, that’s all. 🙂
I think its even simpler than that – For example if I paid $5400 for 2023 in federal taxes, i can take $5400 off the purchase price in 2024, or I can estimate how much I will owe in 2024 and be liable for the difference come April 2025
Yes, I follow that and thanks for clarifying. However, a buyer still needs enough liability in order to avail themselves of the credit. If you didn’t make enough in a given year to owe $7,500 in tax liability, then you don’t get $7,500. ‘off’ the price of an EV. Which is why a rebate would make more sense instead of a tax credit IMO.
But the federal government never asks for my feedback about tax policy. 🙁
PS: with a few EVs getting down into the theoretical $35K range, they’d perhaps be more attractive to buyers who might not routinely make enough taxable (net, after deductions, etc…) income to owe $7,500.+ yearly.
They could just make the tax credit refundable, like college tax credits. Alternatively, they could make it multi-year, meaning you could keep applying it year after year to bring your taxes to zero until the entire credit amount is used.
I think a word fell off at the editor’s table. Coal baron “Senator Manchin was the main supporter of CRIPPLING the IRA” after sinking the Green New Deal and Build Back Better. Any progressive climate policy actions from the current administration have been made in spite of Manchin’s (lack of) support, not because of it.
https://www.nbcnews.com/news/rcna81299
https://thehill.com/policy/energy-environment/4302952-five-times-joe-manchin-changed-climate-policy-senate/
Senator Manchin is a principled public servant. He supports only policies that benefit:
ChinaAmericaWest VirginiaHis constituentsSenator Manchin
It runs in the family. His daughter is even more of a grifter.
Yeah that Epipen woman, right? What a XXXXX.
Yes.
Yeah, what passed was because that’s what Manchin would allow. So I guess you could say he supported it as written, but it was partially curtailed because of negotiations with him.
Even with subsidies, the cars will sit on dealership lots mostly unsold. Relative to both the prevailing wages and disposable income, they’re too expensive.
The first manufacturer to make a sub-$25k EV for the U.S. market with a real-world highway range in excess of 200 miles, and Tesla Supercharger compatibility, will see sales of that vehicle take off. Per vehicle, the profit margin will be narrow. By necessity, planned obsolescence will have to be kicked to the dustbin of history with a focus on aero drag reduction as much as possible(without much concern for style), and a focus on making the vehicle repairable as it ages. This body design will have to be so good it will be in use 20+ years after the first examples rolled off the assembly line because there will be little or nothing to improve, since the focus was on the lowest possible CdA for the car’s given application. Every single sale of such a car will cannibalize that of a more expensive car.
But the industry wants to sell high-margined SUVs/CUVs/trucks that are going to fill up landfills once the battery pack starts to die instead. And when they accumulate in dealer lots for lack of customers, bailouts will be demanded and EV technology will be blamed for being “not viable”.
Well said. My knee-jerk response to the subsidies being more available was “Great, most people still can’t afford the monthly payment anyway” so it’s kind of a moot point.
Oh and yeah, it’s going to be funny when these ‘green’ cars become an environmental/recycling disaster because they’re obsolete or unable to be fixed.
The tragedy of such a scenario is that EVs have the potential be have extremely low environmental impact. Designed correctly, a purchase could last a human lifetime, with a battery pack replacement or three along the way, and comparatively little maintenance compared to ICE.
This, all possible with 25 year old tech, nevermind what we have now(which is much better than what was available 25 years ago). Solid state batteries may prove to outlast the car itself, once they are made available.
What isn’t viable is the current economic paradigm of constant, unending economic growth. For EVs to succeed, they need to be built in a way that recognizes this reality, otherwise all of this resource intensive and environmentally-hazardous tech that goes into them will be outright squandered and much of the raw materials rendered non-recoverable(not everything is 100% recyclable).
Every 200 kWh battery pack in a truck or SUV with 300 miles range(80 miles when towing) has enough battery materials to make EIGHT W123-sized sedans with good aero that have 200 miles range, and ONE-HUNDRED single-seater microcars that have 100+ miles range.
In this context, isn’t the current SUV/CUV/truck zeitgeist more than a bit wasteful, especially given the unrepairable nature of the designs?
Can’t disagree that we need a huge paradigm shift in the worldwide economy. Our disposable society is (and has not been) sustainable.
I’m not holding my breath, humans will collectively use up the planet until we dispose of it. Our future is marginal warlord societies fighting over water.
Current battery technology is theoretically infinitely recyclable, but the actual market is caught in a chicken-and-egg loop since there are so few EVs reaching the end of their service lives now and in the near and medium-term future since such a huge proportion of them are new and nearly-new cars and the vast majority are less than 10 years old.
Theoretically, yes. In practice, not yet.
It also takes a lot of energy to recycle these raw materials when/where it is possible to do so. The designs should minimize the need for this by making the actual battery packs repairable, preferably with basic tools.
These monstrosities with thousands of cells and a rats nest of wires everywhere, with individual fusing on each cell, and a massive spaghetti network of cooling pipes all over, are the exact opposite of repairable. At least the new Tesla Model 3s using CATL cells greatly simplify the pack layout. The ideal is to have a single string of high AH prismatic LiFePO4 batteries, with a simple BMS and cooling system, placed in a location accessible to repairs.
The process would basically be to use a multimeter to locate the bad cell, remove it, replace it with the same make/model/size of cell, after balancing the cell to match the pack, and now the car is drivable again. That is how hobbyists using simple packs made with CALB LiFePO4 do it. Instead of spending $XX,XXX replacing an entire battery pack, they’re out $XX-XXX and a few hours of work instead.
I hope to see in the future that as battery packs degrade but the rest of the car is fine a healthy battery replacement industry spring up. It would be a shame to condemn fully workable vehicles to the junk pile for the want of a battery.
If the battery doesn’t do them in, the no-longer in production 15 years after the car was built, non-replaceable, non-repairable touch screen controlling everything will. Same with various CANBUS modules.
We need to go back to physical buttons for everything and electronically simpler designs. Once a batch of semiconductor components mission critical for and exclusive to a vehicle are out of production, that is it. There are no replacements, and without an exact copy of the schematic and all software, plus the multi-billion dollar facilities to manufacture them, it will not be feasible for any 3rd party to make replacements.
“Oh and yeah, it’s going to be funny when these ‘green’ cars become an environmental/recycling disaster because they’re obsolete or unable to be fixed.”
If all else fails there’s always the easy way out: Just throw them into the ocean.