Most electric vehicles do not qualify for the federal tax credit

DETROIT (AP) – A tax credit of up to $7,500 could be used to pay for an electric vehicle under an inflation-reduction bill now moving toward final approval in Congress.

But the auto industry warns that most EV purchases won’t qualify for the big tax break.

This is due to the bill’s requirement that an electric vehicle must have a battery sourced from or recycled on the continent with minerals built in North America to qualify for the credit.

Those rules will become more stringent over time — in a few years, no EVs will qualify for the tax credit, says John Bocella, CEO of the Alliance of Automotive Innovation, a major industry trade group. Currently, the coalition estimates that 50 of the 72 electric, hydrogen or plug-in hybrid models sold in the U.S. do not meet the requirements.

“The $7,500 loan may be on paper, but no vehicle will qualify for this purchase in the next few years,” Bozzella said in a statement.

The idea behind the requirement is to promote domestic manufacturing and mining, build a robust battery supply chain in North America, and reduce the industry’s dependence on disrupted foreign supply chains.

Production of lithium and other minerals used to make EV batteries is now dominated by China. And the Democratic Republic of Congo is the world’s leading producer of cobalt, another component of EV batteries.

Although electric vehicles are part of a global effort to reduce greenhouse gas emissions, an Associated Press investigation found that they require metal components called rare earths, which are found in places like Myanmar. The push for green energy has led to environmental destruction.

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Under the $740 billion economic package, which passed the Senate over the weekend and is close to approval in the House, the tax credits will take effect next year. For an EV buyer to qualify for the full credit, 40% of the metals used in the vehicle’s battery must come from North America. By 2027, the required threshold will reach 80%.

If the metal requirements are not met, the automaker and its buyers are eligible for a half-tax credit of $3,750.

A separate rule requires that half the value of batteries must be manufactured or assembled in North America. Otherwise, the remaining tax credit will be forfeited. Those requirements grow exponentially each year, eventually reaching 100% in 2029. Another rule requires the EV itself to be manufactured in North America, thereby excluding any foreign-manufactured vehicles from the tax credit.

Automakers typically don’t disclose where their components come from or how much they cost. But Tesla’s Model Y SUV and some versions of the Model 3 car, the Chevrolet Bolt car and SUV, and the Ford Mustang Mach E deserve at least part of the credit. All of those vehicles are assembled in North America.

The tax credit is only available to couples with incomes of $300,000 or less or single individuals with incomes of $150,000 or less. And trucks or SUVs with sticker prices over $80,000 or cars over $55,000 do not qualify.

There’s also a new $4,000 credit for buyers of used EVs that could help modest-income families go electric.

The industry says the North American battery supply chain is currently too small to meet battery component demand. It proposed that the move would expand the list of countries eligible for the battery product tax credit to countries that maintain defense agreements with the United States, including NATO members.

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One component of the bill is that after 2024, no vehicle will qualify for a tax break if its battery components come from China. Most vehicles now receive some parts in China, the association said.

A Michigan Democrat and leading ally of Detroit automakers, Sen. Debbie Stabenow, Sen. from West Virginia, a crucial Democratic vote. Complained that Joe Munchin opposed tax incentives for EV purchases.

“I’ve been hanging around with Senator Manchin, and he’s obviously not in favor of any debt, so it’s a compromise,” Stabeno told reporters Monday. “We’ll do that and make it as good as we can for our automakers.”

Manchin, a longtime Democrat, negotiated the deal’s terms Along with Senate Majority Leader Chuck Schumer, he has blocked previous climate and social spending plans.

Manchin’s office declined to comment. He told reporters last week that automakers “need to make sure we’re aggressive, we’re assembling in North America, we’re processing in North America, and we’re putting a line in China.” I don’t believe we should build a transportation system on the back of foreign supply chains. I’m not going to do that.

Stabenow insisted that the bill was written by people who didn’t understand that manufacturers couldn’t just flip a switch and build a North American supply chain. A number of automakers, including General Motors, Ford, Stellandis, Toyota and Hyundai-Kia, are planning to build EV battery plants in the US.

“Industry leaders want to require that ores for batteries be sourced closer to home than from our geopolitical competitors,” said Katie Sweeney, executive vice president of the National Mining Association.

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“Doing that directly supports high-paying jobs in America … protects our supply chain and actually increases our global competitiveness,” he said.

Stabeno said he’s optimistic the Biden administration will be able to offer the tax credits next year while working on more detailed rules for battery requirements.

“We will continue to work with the automakers and the administration to get as much common knowledge on the regulations as possible,” the senator said.

Messages were returned Monday seeking comment from the White House and the Treasury Department, which administers the loans.

Stabeno says he’s happy the move will restore tax credits General Motors, Tesla and Toyota, All these were covered under the previous bill and can no longer be provided. Ford, too, he said, is closing the EV cap.


AP writers Matthew Daly and Fatima Hussain contributed to this report from Washington.

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