Much hay has been made about how the Inflation Reduction Act represents America’s largest climate investment ever. But reading between the lines of legislation tackling everything from taxes to health care reveals that the nearly $740 billion law has some caveats, such as new provisions for the 10-plus-year-old EV tax credit. increase.
For years, prospective electric vehicle buyers could count on the federal automobile tax credit. That equates to his $7,500 discount on a wide range of EV models. The incentive was originally approved in 2008 and played a key role in driving early EV startups and encouraging price-sensitive consumers to take the plunge and go electric. The IRA extends the tax credit he will through 2032, setting an additional $4,000 deduction for used EVs.
But there are also new rules for vehicles to qualify for that credit. Final assembly of qualifying vehicles must occur in North America, and credits are also dependent on vehicle size, total cost, and potential purchaser income. By 2024, at least 40% of the critical minerals and at least half of the battery components used to build new eligible EVs will be granted to the United States or one of its free trade partners for access to full credits. must be procured from
But for most consumers, the new tax credit can be elusive. According to the Alliance of Automotive Innovation, a trade group representing the automotive industry, approximately 70% of all electric, hydrogen and hybrid vehicles currently sold in the United States are ineligible for credit. Only about 11,000 vehicles will receive credits in 2023 and about 60,000 vehicles in 2024, according to an August analysis of IRA proposals from the Congressional Budget Office. is estimated to be possible. While the Internal Revenue Service is responsible for determining which vehicles qualify, experts told Recode that vehicles that will receive credit over the next few years, especially as the law’s procurement requirements are designed to become more stringent. He said he expects there to be very few.
But that doesn’t mean it will last forever. The tax credit is just part of the Biden administration’s plan for a new era of auto manufacturing in the United States. This includes everything from a renewed push to rethink mining regulations to his $3 billion investment in domestic batteries and his chain of supply through bipartisan infrastructure legislation. These efforts, along with the proliferation of new US-based his EV factories, could make US-made electric vehicles more common in the late 20s. At the same time, the credit will not necessarily discourage people from buying EVs manufactured abroad, especially as electric vehicle prices continue to fall and geopolitics continue to complicate the world’s access to fossil fuels. .
“People will still buy EVs that are not tax-deductible,” explains Jane Nakano, a senior fellow in the Energy Security and Climate Change Program at the Center for Strategic and International Studies. “EVs have real benefits for consumers. Not just decarbonization.
China is now the undisputed global leader in EVs. The key minerals used in electric vehicle batteries are now sourced from around the world, but most of the cobalt tends to come from the Democratic Republic of the Congo, and lithium from South America and Australia. Materials are made in China. China is also responsible for over 70% of global battery cell production. The country not only manufactures many of the world’s battery components, such as cathode materials, but is also home to the largest battery manufacturer, Contemporary Amperex Technology Co.
The overhauled car tax credit is aimed at keeping up with car makers and making them more competitive, but car makers are one big help. An earlier version of the credit included a provision that after the automaker built 200,000 of his eligible vehicles, he could no longer claim the $7,500 credit. That means companies like Tesla and GM haven’t been able to provide credit for some time. The latest version of the law removes that restriction, so car models built by major EV manufacturers may once again be eligible for credit.
Automakers will face an uphill battle to meet these requirements, especially as the proportion of parts and materials that must be sourced from the United States or its partners is designed to increase in the coming years. US mineral reserves such as cobalt, lithium and nickel represent a fraction of the world’s current supply. Finally, stricter rules apply. By 2024, eligible vehicles will no longer be able to incorporate battery components from China or other “foreign entities of concern,” and by 2025 may also contain critical minerals from these countries. You won’t be able to.
“Now is the perfect time for these automakers to determine the next course of their business model and where to invest and ramp up production.”
Even before Biden signed the IRA earlier this month, the US was making progress in this area. Automakers and electronics manufacturers have gradually increased the number of battery production facilities in the United States over the past several years. Earlier this week, Honda and his LG Energy Solutions announced that he is building a $4 billion battery plant in the United States, with volume production planned for 2025. his second facility in Oklahoma. The Department of Energy estimated late last year that at least 13 new gigafactories could come to the US, in addition to several factories already opened by companies such as Tesla and GM.
These efforts are underpinned by other investments in the Biden administration’s technology supply chain. The White House has already allocated funds from last year’s Bipartisan Infrastructure Act to support new projects focused on lithium production and recycling of critical minerals, and the Department of Energy has announced that GM and LG Chem’s new It lends billions of dollars to help build battery factories. The White House also supports efforts in Congress to overhaul the Mining Act of 1872. This law still governs much of the mining industry in the United States today. When Mr. Biden invoked the Defense Production Act in April, he declared key metals used in EVs to be critical to national security, laying the groundwork for the Pentagon to boost domestic mining.
The CHIPS and Science Act could also empower American-made EVs. A $52 billion package grant officially approved by Biden this summer will help build several new semiconductor factories in the United States, including one focused on making chips for cars. . This is especially important for an EV, which could easily require twice as many computer chips as a comparable internal combustion engine vehicle.
RMI senior associate Nathan Iyer explains: A reasonable amount close to his 5, 6, 10, 13% of the global market, to ensure that our own demand is covered by his chain of supply. ”
However, Biden’s plan has some real flaws. Federal mining applications and approvals have declined over the past few years, and environmental regulations could delay the start of new mining projects. of potential damage to agriculture and wildlife, and disproportionate impacts on local communities. In Minnesota, tribe members who live nearby say they won a contract with Tesla about a mine that Talon Metals, a company praised by the Biden administration, plans to extract nickel for electric vehicles. , has already expressed concern.
There are also logistical hurdles. The IRS needs to understand how to determine exactly which EV models meet the new credit’s stringent procurement requirements. This is a task that tax authorities are not currently equipped for. Other countries, including the European Union and South Korea, have suggested that the clean vehicle tax credit would be unfair to foreign automakers and could violate international trade rules. To avoid it entirely, the automaker might accept a $7,500 markup.
These efforts are a reminder that despite the long history of automobile manufacturing in the United States, we have mostly started from scratch when it comes to electric vehicles. The investments the Biden administration is making in EV manufacturing capacity will produce few parts or vehicles for at least several years. Only time will tell if Mr. Biden’s EV of the American auto industry his renaissance dream will finally come true.
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