Three of the best-selling electric vehicles (EVs) in the US would become eligible for $7,500 tax credits if the Inflation Reduction Act becomes law.
The Tesla Model 3, Tesla Model Y, and Chevy Bolt are no longer eligible for credits under the current tax scheme, which phases out tax credits after an automaker sells 200,000 EVs. Tesla passed that threshold in July 2018 and GM, maker of the Chevy Bolt, followed suit later that year. The Inflation Reduction Act would eliminate the sales cap in 2023.
The bill, which already passed the US Senate and is set for an Aug. 12 vote in the House, would instead create new restrictions on tax credits for EV sales. To qualify, vehicles must be under a certain price ($80,000 for trucks and SUVs and $55,000 for all other categories) and buyers must earn less than $150,000 if single or $300,000 as a household if married. Eligible vehicles must be assembled in North America. And starting in 2024, qualifying vehicles must have batteries assembled in North America and built using minerals mined or processed in that region or a country with which the US has a free trade agreement.
Of the top 12 best-selling EV models in the US, three models—the Audi e-tron, the Porsche Taycan, and the Hyundai Kona Electric—would no longer be eligible for a tax credit, either because their price is too high, they are not assembled in the US, or both. But these models represented just 7% of US EV sales last year. The Tesla Model 3, Tesla Model Y, and Chevy Bolt, which would gain access to the tax credit, accounted for 75% of US EV sales in 2021.
Battery requirements threaten to end EV tax credits
Most EVs don’t meet the Inflation Reduction Act’s battery sourcing requirements; the vast majority of battery metal mining and assembly happens in China (and other countries with which the US does not have a free trade agreement). Setting up new supply chains for batteries could take automakers years. As a result, most EV tax credits are at risk of lapsing in 2024, when the battery sourcing requirements begin to phase in.
Industry groups are lobbying lawmakers to delay or defang the battery requirements. There’s reason to believe they might succeed: Federal bureaucrats, after all, are quite adept at finding loopholes to reshape laws.