Industry warns most electric vehicles won’t qualify for tax credit

DETROIT — The auto industry is warning that the vast majority of electric vehicle purchases won’t qualify for a new $7,500 tax credit touted as a major climate initiative in the Inflation Reduction Act now moving toward final approval in Congress.

That’s mainly because to qualify for the credit, an electric vehicle must contain a battery built in North America with minerals or recycled on the continent.

And those rules become more stringent over time — to the point where, in a few years, it’s possible that no EVs would qualify for the tax credit, says John Bozzella, CEO of the Alliance of Automotive Innovation, an industry trade group. The alliance estimates that about 50 of the 72 electric, hydrogen or plug-in hybrid models now sold in the United States wouldn’t meet the requirements.

“The $7,500 credit might exist on paper,” Bozzella said, “but no vehicles will qualify for this purchase over the next few years.”

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

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

If the metals requirement isn’t met, the automaker and its buyers would be eligible for half the tax credit, $3,750.

A separate rule would require that half the batteries’ value must be manufactured or assembled in North America. If not, the rest of the tax credit would be lost. Those also grow stricter each year, eventually reaching 100% in 2029. Still another rule would require that the EV itself be manufactured in North America, thereby excluding from the tax credit any vehicles made overseas.

Sen. Debbie Stabenow, a Michigan Democrat and a leading ally of Detroit automakers, said that Sen. Joe Manchin of West Virginia, a critical Democratic vote, had opposed any tax credits for EV purchases.

“I went round-and-round with Senator Manchin, who frankly didn’t support any credit of any kind, so this is a compromise,” Stabenow told reporters. “We’ll work through it and make this as good as we can for our automakers.”

Stabenow said she remains hopeful that the Biden administration can offer the tax credits next year while it works on the detailed rules for the battery requirements.

“We will continue to work with the automakers and the administration on getting as much common sense into the regulations as possible,” she said.

Sen.  Debbie Stabenow, D-Mich., speaks at a news conference, Tuesday, Feb., 15, 2022, after a Democratic weekly policy luncheon on Capitol Hill in Washington.  (AP Photo/Jacquelyn Martin)
Sen. Debbie Stabenow, D-Mich., speaks at a news conference, Tuesday, Feb., 15, 2022, after a Democratic weekly policy luncheon on Capitol Hill in Washington. (AP Photo/Jacquelyn Martin)