Automakers struggle to figure out whether new US bill allows electric vehicle tax credits for customers

US automakers and dealerships are scrambling to see if they can still offer tax credits of $7,500 (about Rs 5,97,000) to potential electric vehicle (EV) buyers, as the US Congress prepares for final votes today on a bill that includes a top-down overhaul of Washington’s clean vehicle policies.

As part of the $430 billion (about Rs. 34.23,000 crore) climate, health care and tax bill that the US House of Representatives was due to vote on Friday, the rules governing the current tax credit of $7,500 (about Rs. 5.97,000) for electric vehicles aimed at persuading consumers to buy the vehicles would be replaced by incentives designed to bring more battery and electric vehicle manufacturing to the United States.

Manufacturers, dealers and consumers don’t have answers to many fundamental questions about how the new rules will affect how clean consumer vehicles – including all-electric and hybrid models – will be bought, sold and built, said automakers, consultants and lobbyists.

However, industry executives were more positive about proposed incentives of up to $40,000 (about Rs 31,84,176) per vehicle for larger electric utility vehicles, such as Tesla’s developed Semi or electric utility vans. by several manufacturers.

The Cut Inflation Act provisions are “a powerful tailwind in the commercial space,” said RJ Scaringe, chief executive of Rivian, which has struck a deal to deliver up to 100,000 large pickup trucks to Amazon shareholder.

The legislation brings “a significant change in value chain requirements, in a very short time, that affects an industry where supply chain development…is measured in years,” said John Loehr, chief executive of the consulting company AlixPartners.

No longer eligible

The most immediate effect of the Inflation Reduction Act would be the prohibition of tax credits for vehicles assembled outside of North America. That would mean about 70% of the current 72 electric and plug-in hybrid vehicles on the U.S. market would no longer be eligible, said the Alliance for Automotive Innovation, which warned the change “will surprise and disappoint customers in the automotive market.” a new vehicle. and “undermining” electric vehicle sales targets.

However, U.S. Transportation Secretary Pete Buttigieg told Reuters in an interview this week: “It will be…a very important long-term transformational policy to accelerate the electric vehicle revolution and make sure it’s is a “made in America” ​​electric vehicle revolution.”

“The industry is sometimes capable of more than it first meets the eye,” Buttigieg added.

The Biden administration has yet to draft and finalize implementing regulations to address some of the complex issues raised by the rapid rewrite of the tax credit.

New restrictions on battery supply and critical minerals, as well as price caps and revenue caps, will take effect Jan. 1, potentially making all current electric vehicles ineligible for the full $7,500 credit. (about 5,97,000 rupees).

According to forecasts by the Congressional Budget Office, only 11,000 electric vehicles could benefit from the tax credit in 2023.

National content requirements will increase over the next six years.

Volvo Car North America said only one of its models currently eligible for electric vehicle tax credits will still be eligible after the bill is signed into law. The only short-term that will qualify is the S60 Recharge, which is assembled in South Carolina, and even that might not qualify after Jan. 1.

Several automakers, including startups Rivian and Fisker, this week began urging potential customers to get out of the fence and commit to buying vehicles before the current rules are replaced.

Binding contract

The bill allows consumers to still get the credit if they buy before Biden signs the bill, but must have a “binding written contract” to buy.

Rivian encouraged potential buyers in a letter to return $100 (about 7,900 rupees) of their non-refundable deposits in order to qualify for the credit. Rivian executives said on Thursday that customers were ordering R1 trucks and SUVs with average prices of $93,000 (about Rs. 74,03,200) – well above the thresholds of the proposal before the House.

“We cannot guarantee that the IRS (Internal Revenue Service) will approve eligibility for the tax credit because we interpret the terms of the Inflation Reduction Act,” Rivian warned in his letter.

Mercedes-Benz said it was “reviewing the proposal in anticipation of the new arrangements becoming final within the coming week.”

On Thursday, officials from the European Union and the South Korean government said they were concerned that the domestic content and manufacturing requirements of the Curbing Inflation Act could violate World Trade Organization rules. trade.

U.S. electric vehicle market leader Tesla and General Motors are already selling their electric vehicles without a federal tax credit, as they hit the 200,000 vehicle cap under current law.

Tesla and GM may not be eligible to offer tax credits under the new law until January 1. that 40% of battery minerals come solely from North America or countries with which the United States has free trade agreements.

The proposed subsidy limits would hit automakers and battery makers with parent companies in China the hardest.

From 2024, rules will come into effect that will make vehicles ineligible for any credit if they have content from a “foreign entity of concern”, a term that could include Chinese companies.

© Thomson Reuters 2022


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