September 26, 2023

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Electric cars may not be eligible for the new tax credit

Electric cars may not be eligible for the new tax credit
Zoom / Volkswagen is one of several automakers already assembling electric car battery packs locally. But the value of the materials that go into the packaging will determine whether they qualify for the modified clean car tax credit.


The US Senate on Sunday passed the Inflation Cut Act of 2022 and heads to the House of Representatives, where it is expected to pass easily. Contains many changes in the tax code, I mean in large part To prevent the worst effects of climate change.

Among these amendments is a review of the existing tax credit for new electric vehicles connected to electricity. As we mentioned in detail last weekThe IRA offers an income cap for the tax credit and will only apply to sedans costing less than $55,000 and other electric vehicles costing less than $80,000. The bill also drops the 200,000-vehicle per OEM cap on the tax credit, which would benefit both GM and Tesla.

At least it would be if their electric vehicle batteries were mostly made within North America, where at least 40 percent of the materials used were mined and processed within North America or a country that has a free trade agreement. Now, rather than relying on battery capacity, half of the credit ($3,750) is tied to where the packaging is made, and the other half from its supply chain. And that’s going to be a problem if you’re looking to buy an EV in 2023.

Auto and battery makers began building factories in North America. Plus Tesla’s Nevada website, GM and LG Chem You build batteries in Ohio, with Ford and Volkswagen using SK cells made in Georgia. More factories in operation: Ford and SK Building factories in Kentucky and Tennesseeto name a few, with US battery factories also operating in Stilants And the Volkswagen, among other things. So some electric vehicles may qualify for at least half of the full $7,500 credit, depending on how the value of the battery is determined.

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“Ultimately, a lot will also depend on what guidelines the IRS has to issue. At first glance, it looks like almost no cars will qualify, but some may end up squeaking,” Sam Abuelsamid, principal research analyst at Guidehouse Insights, told Ars. Without knowing more, it’s impossible to say which electric cars qualify for at least $3,750, but the list could include the Ford Mustang Mach-E, Volkswagen ID.4s locally producedand GM EVs that use the new Ultium cells and Teslas that use cells from Nevada.

But perhaps it is more evident with regard to the other half of the credit. Even if these domestic battery factories increase the US share of battery manufacturing, at least 40 percent of the critical chemicals that go into those cells must be extracted and processed locally, a proportion that will increase by 10 percent each year.

Right now, North America doesn’t have the capacity to handle that production—about two-thirds of the world’s lithium, a significant portion of cobalt, and nearly all of the graphite. It is processed in China.

Domestic recycling of lithium-ion batteries will provide a single domestic source of battery material, and the United States contains deposits of lithium that are not yet exploited. Automakers like General Motors were already trying to get as much locally as possible, but Globally, there is a race to secure contracts for future productionwhich may limit their options.

Once President Biden signs the bill into law, it is up to Transportation Secretary Pete Buttigieg to issue guidance on how to interpret the new rules. This includes how an individual’s income is determined in case of point-of-sale deduction and the value of battery manufacture.

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This must happen no later than the end of 2022, and there is no grace period once the directive is issued. But if you have a binding contract to purchase a new electric car by the time the law is passed, but it has not yet been delivered, You must still be eligible To get the old tax credit.

“Manufacturing tax credits and grant funding will help speed up the process of domestic industrial base conversion that is currently underway. Unfortunately, the requirements for the electric vehicle tax credit will make most vehicles ineligible immediately for the incentive. This is a missed opportunity at a critical time and sudden change,” said John Bozella, President and Director. Executive Director of the Automotive Innovation Alliance: