If you’re in the market for a new car, wouldn’t you be more likely to buy a climate-friendly electric model if you could save thousands of dollars off the sticker price?
That’s the idea behind electric vehicle subsidies authorized as part of the Inflation Reduction Act passed by Congress last year, which are supposed to accelerate the fight against climate change by making zero-emission cars more affordable. But that’s a far cry from what’s likely to happen. Under complicated new rules released by the Treasury Department, only a handful of more than 90 electric car models for sale in the U.S. will be eligible for incentives that allow car buyers to claim a tax credit of up to $7,500.
For that you can thank U.S. Sen. Joe Manchin III, D-W.Va. Restrictions on sourcing battery parts and critical minerals were added to the legislation in order to win his support and, at least theoretically, encourage domestic manufacturing and reduce the electric vehicle supply chain’s dependence on China. Since Jan. 1 vehicles have had to be assembled in North America and cannot cost more than $55,000 (or $80,000 for trucks and SUVs) to qualify for the full credit.
To be eligible under the new standards, they’ll also have to be built with specific percentages of materials from the U.S. or countries with which the U.S. has a free trade agreement. This year, at least 40% of the value of battery minerals must be extracted or processed in the U.S. or its trade partner countries, or derived from materials recycled in North America, increasing annually until reaching 80% in 2027, while at least 50% of the value of battery components have to be manufactured or assembled in North America until hitting 100% in 2029.
It’s hard enough to purchase a car without having to sift your choices through an eligibility list based on complex sourcing requirements that get more stringent every year. Car buyers should be given unequivocal and simple incentives to go electric, but instead they’ll encounter confusion and uncertainty.
While the list of vehicle models that meet the new standards won’t be available until later this month, some carmakers have already announced qualifying models based on the rules. For example, Tesla said the lowest-priced version of its Model 3, the bestselling car in California, will not be eligible for the full credit under the new battery-sourcing requirements, but General Motors said the Cadillac Lyriq, Chevrolet Equinox EV SUV and Blazer EV SUV will qualify fully. Bottom line: Fewer EV models qualify for the full $7,500 tax credit, some will only be eligible for $3,750, and many will get no incentives at all.
EV adoption has started to pick up, with plug-in vehicles accounting for nearly 6% of new U.S. sales in 2022. But their higher prices still put them out of reach for many households. Nationwide, new EVs sell for about $10,000 more, on average, than gas-powered models. That disparity hurts lower- and middle-income Americans.
If the EV tax credit rules are any indication of what’s to come, the transition to zero-emission economy is in real trouble.
Los Angeles Times/Tribune News Service
