Manchin rebuffs industry criticism of new EV tax credit
Among the many provisions of the Inflation Reduction Act (IRA) of 2022 is a revamp of the federal tax credit for electric vehicles. The changes would restore the eligibility of Tesla and General Motors and includes a smaller credit for the purchase of a used EV. Despite this, the bill is running into opposition from the auto industry, and most of the EVs currently on sale would no longer qualify. But the bill’s author, Senator Joe Manchin, has little time for complaints.
Currently, almost all new plug-in vehicles qualify for the plug-in electric drive vehicle credit, as laid out in Internal Revenue Code section 30D, introduced on the basis that the high cost of a lithium-ion traction battery is the main impediment to electric vehicles reaching price parity with their gasoline- or diesel-powered alternatives.
The credit is based on battery capacity. Starting at $2,917 for a plug-in vehicle with a 5 kWh pack, the credit increases by $417 per kWh to a maximum of $7,500. But there’s a penalty for sales success—once an automaker has sold 200,000 qualifying plug-in vehicles, the credit begins to sunset. So far, this has only happened to Tesla and General Motors, both of which triggered the process in 2018.
Some in the Democratic Party wanted to expand this credit to boost EV adoption. In 2021, a more ambitious bill from the House of Representatives sought to increase the tax credit to a maximum of $12,500. This credit would have started at $4,000 and added $3,500 for a battery of at least 40 kWh. An additional $4,500 credit would have been available if the EV was made in a unionized US facility, with a final $500 available for an EV made mostly in the US (including the battery pack).
In addition to encouraging domestic EV manufacturing, that legislation also introduced an income cap—albeit in the mid-to-high six-figure range—plus a price cap, ruling out sedans that cost more than $55,000, vans more than $64,000, SUVs more than $69,000, and electric pickups that cost more than $74,000. The 2021 bill also proposed tax credits for used EVs, a commercial EV tax credit, and tax credits for e-bikes.
That legislation failed in the US Senate, in large part due to strident opposition by Manchin, who has repeatedlycriticized tax incentives for EVs. Last year, he was one of three Democratic senators who voted to change the existing EV credit so that only taxpayers with incomes below $100,000 and only EVs that cost less than $40,000 could qualify. (That amendment did not pass.)
Manchin was still upset with the idea in April of this year. “There’s a waiting list for EVs right now with the fuel price at $4. But they still want us to throw [a] $5,000 or $7,000 or $12,000 credit to buy electric vehicles,” he said during a hearing on the Department of Transportation. “It makes no sense to me whatsoever. When we can’t produce enough product for the people that want it and we’re still going to pay them to take it—it’s absolutely ludicrous in my mind.”
What does the new bill say?
If the IRA passes as written, the tax credit will no longer sunset once an automaker sells its 200,000th plug-in, and both Tesla and General Motors would qualify again. The tax credit would also finally be transferable to a car dealer, meaning it could be applied to the price of the EV immediately—this would solve the problem of purchasers not being able to claim the tax credit if their tax burden is too low.
However, not all EVs will be eligible. As with the Senate bill from 2021, there are price caps—$55,000 for sedans and $80,000 for vans, SUVs, and pickups. This would leave about 12 current EVs eligible for the credit.
Used EVs would be eligible for the first time they were resold, although only by car dealers, not private individuals, and only for used EVs that cost less than $25,000. The tax credit for used EVs is up to $4,000 or 30 percent of the purchase price.
The income cap returns, although now with much lower limits—individuals buying a new EV with an adjusted gross income (AGI) of more than $150,000, heads of households with an AGI of more than $225,000, or joint filers with an AGI of more than $300,000 would not qualify any longer. For used EVs, the income caps are at $75,000 for individuals, $112,500 for the head of a household, and $150,000 for joint filers.
The union-made requirement is no more, but the EV’s battery pack must be increasingly made in North America, with materials sourced or recycled from North America or countries that have a free-trade agreement with the US. Starting in 2024, 40 percent of a battery pack’s materials would need to come from these sources, increasing to 80 percent by 2027. And at least 50 percent of the battery pack’s components would have to be manufactured or assembled in North America in 2024, increasing to 100 percent by 2029.
If enacted, the bill would rule out battery packs made with Chinese cells or packs made with raw materials processed in China, which currently account for the vast majority of the lithium, cobalt, graphite, and nickel that goes into EV cells. Although US domestic battery production capacity is increasing, this bill would require wide-ranging changes to automaker supply chains as well.
As you might expect, many automakers are unhappy with the IRA’s new tax credit. General Motors said that “some of the provisions are challenging and cannot be achieved overnight,” and the startup Rivian said that the bill “will pull the rug out from consumers considering purchase of an American made electric vehicle.”
But they may be wasting their breath. On Tuesday, Manchin seemed unwilling to consider tweaks to his plan. “Tell [automakers] to get aggressive and make sure that we’re extracting in North America, we’re processing in North America, and we put a line on China. I don’t believe that we should be building a transportation mode on the backs of foreign supply chains. I’m not going to do it,” he said.