Why buying an electric vehicle has become more confusing
IIn the latest development in the lengthy and sometimes contentious administrative machinations over federal electric vehicle (EV) incentives, the Treasury Department today finally released new proposed rules on subsidy-eligible vehicle batteries.
The Inflation Reduction Act introduced a slew of electric vehicle tax credit regulations last summer, and the Treasury Department is in the process of clarifying the intent of the law and enacting it. as tax code rules, with far-reaching consequences for the fate of US electric vehicles. transition, global mining and mineral processing supply chains, and the wallets of ordinary Americans. That is, if the caveats and cross-targets built into the rules don’t trigger the government’s EV push on its own shoelaces. And whether consumers and automakers are actually able to make sense of them.
The federal government’s position on electric vehicles used to be pretty straightforward. Gas-powered cars ruled the road for generations, but their emissions were a significant contributor to climate change (transportation is the largest contributor of emissions in the United States) and caused long-term health problems for people living in near highways and in smog-choked cities. Electric vehicles were one answer, but it would be difficult for makers of these new vehicles to compete with traditional automakers. So the government gave them a head start with a $7,500 tax rebate that EV buyers could recoup on their next filing.
But things got complicated when the Inflation Reduction Act was passed last August. The $7,500 tax incentive was again in the Democrats’ landmark climate law, but with significant caveats. The federal government wanted more electric vehicles, but it also wanted the law to be fair to middle-class Americans. So he added a stipulation that buyers must earn less than $150,000, or $300,000 for married couples, in order to qualify for the credit. The electric vehicles themselves were also expected to cost less than $55,000, or $80,000 for trucks or SUVs. Congress wanted American workers to benefit, so they stipulated that eligible electric vehicles must be assembled in North America. And they wanted to wrest control of battery supply chains from China, which had invested heavily in them over the past few decades. So policymakers added a rule that at least 40% of the critical minerals used in making the vehicle’s battery must have been mined or processed. in the United States, or in a country with a free trade agreement with the United States, in order to recover half of the tax credit. To snag the rest of the tax credit, half of the battery components must also be manufactured or assembled in North America. These are the basic targets; the required percentages of minerals and battery components will increase every year.
“The law has several overlapping purposes,” says Albert Gore, director of the Zero Emission Transportation Association (and son of former Vice President Al Gore). “Sometimes (they’re) all lined up, and other times competing with each other.”
These battery supply requirements, coupled with the Cut Inflation Act at the behest of West Virginia Sen. Joe Manchin, have been the source of a major headache. Since so many of these components and minerals are currently sourced from China, many EV models will fall short, although we know exactly which ones will be eligible in mid-April once automakers cars will have done the calculation on their battery. components based on today’s Treasury guidelines, and the government posts the results of which electric vehicles are eligible for tax credits on FuelEconomy.gov.
Learn more: The Cut Inflation Act will soon make it cheaper to buy electric vehicles, if they have North American batteries
Congress wrote these restrictions in place, but it is the job of the Treasury Department, and by extension the Biden administration, to implement them. It gives the president space for some bureaucratic tinkering in how IRA mandates come into effect, and they’ve used it to soften the blow of the restrictions. “They had to make the distinction between making sure they were going to support domestic manufacturing and supply chains, but also making sure the electric vehicle tax credits didn’t stop altogether,” says Ingrid. Malmgren, director of policy at Plug in America, an EV policy nonprofit. “It is not an easy task.”
Earlier this year, the administration changed vehicle classifications so more cars would qualify under price caps (many things now count as SUVs), and it took advantage of a legal loophole to let leased vehicles out of cause for much of the restrictions. This means automakers have a place to put the cars that don’t qualify – they can transfer them to the leasing arm of their business, deduct the tax credit, then lease the cars to consumers and (hopefully) pass on the tax relief to them.
Today the administration has finally decided to issue rules to implement IRA restrictions on critical minerals and battery components. These new rules also give a little extra leeway. For example, according to the guidelines, if most of the value added for the processing of a mineral occurred in a country that has a free trade agreement with the United States, automakers can include it in the required percentage of USA-friendly materials, even though much of the other processing took place elsewhere, at least for the next two years. So, for example, nickel mined and partially refined in a non-free-trading country like Indonesia might still count if it was more intensively refined and processed in a free-trading country like Australia.
Senator Manchin, for his part, is furious at the leeway the Treasury is giving automakers. “It is horrifying that the administration continues to ignore the purpose of the law which is to bring manufacturing back to America and ensure that we have reliable and secure supply chains,” the senator said in a statement from the March, 31st. “American taxpayers’ money should not be used to support manufacturing jobs overseas.”
The Treasury’s goal has been to facilitate the transition to a secure supply chain for electric vehicles that benefits American workers, but the overall picture is still muddled. The law places significant hurdles on manufacturers of electric vehicles. And while the tangle of restrictions on who and how to qualify for the tax credit may eventually lead to fairer tax breaks, cheaper electric vehicles, American jobs and supply chain security, they will slow also almost inevitably the transition to electric vehicles and cleaner air as manufacturers are forced into costly years-long campaigns to build battery production facilities and qualifying mines.
“There’s not even a chance of reacting to get it right,” says Jessica Caldwell, executive knowledge director at automotive industry guide Edmunds. “You just can’t change that quickly. They are cars. It’s not sweaters or anything like that.
Adjustments proposed by the Biden administration may help in the short term. But the problem with administrative band-aids over legislative ink is that a subsequent president — perhaps not so keen on the idea of electric vehicles squeezing oil company profit margins — could easily rip them off. And the sheer complexity of the whole new EV incentive mechanism could put off some EV buyers.
The good news amid all this confusion, however, is that it’s not up to ordinary people to determine which vehicles qualify – potential customers will just have to check which cars are posted on the federal website on the website. fuel economy. “They don’t need to know how to build the car, they just need to know how to operate it,” Malmgren explains. “Same for the tax credit.”
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