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US Senate renews EV tax credit while many models likely not eligible

Peng Chen, DIGITIMES Asia, Taipei 0

Credit: AFP

The US Senate passed the Inflation Reduction Act on August 7, which contains the renewal and improvement of an electric vehicle (EV) tax credit for US buyers. However, whether the revised tax credit will boost the country's EV market remains unknown, as many car models will likely not be eligible.

The Inflation Reduction Act is a funding package of about US$400 billion for climate and energy-related programs. The existing $7500 EV tax credit has been renewed, starting in 2023 and will continue until the end of 2032.

The US House is expected to vote on the bill on Friday. President Joe Biden is likely to sign it into law within weeks. The president has been pushing the US to reach 50% of electric and plug-in EV sales in 2030.

The renewed EV tax credit came with several changes. For example, a cap of 200,000 cars for each manufacturer has been removed. According to Electrek, Tesla and General Motors surpassed the limit years ago, while Toyota reached the cap this quarter.

Moreover, new requirements for getting the tax credit have raised concerns. For instance, a car needs to have a manufacturer's suggested retail price (MSRP) of under US$55,000 to be eligible for the credit, and an SUV or truck must have an MSRP of under US$80,000. The price limit would leave several Tesla and Rivian models out of the program.

Vehicles must be assembled in North America to qualify for the tax credit. In addition, "critical minerals" in the battery must be sourced locally or come from a country that is a US free-trade partner. The requirement is seen as an effort to ask the automotive and battery industries to end their reliance on China's battery value chain.

According to Reuters, Senator Joe Manchin said the EV industry should not depend on supply chains outside the US. He is one of the Senators who support credit restrictions.

It is unclear which car model will be eligible for how much credit. Electrek said the US government would release related guidelines later this year.

The Alliance for Automotive Innovation, which has GM, Toyota and other primary OEMs as its members, had said most EV models might not qualify for the $7,500 tax credit before the Senate's vote.

The organization released a statement expressing its disappointment with the requirements on Sunday, recognizing that the bill will help accelerate the domestic industrial base conversion currently underway.

"Unfortunately, the EV tax credit requirements will make most vehicles immediately ineligible for the incentive," CEO John Bozzella said in the statement. "That's a missed opportunity at a crucial time and a change that will surprise and disappoint customers in the market for a new vehicle. It will also jeopardize our collective target of 40-50 percent electric vehicle sales by 2030."

The bill also allows buyers to use the previous credit on a car delivered in 2023 if a valid purchase order signed in 2022 is in place. Moreover, the funding package would offer a $4,000 tax credit for used EVs and billions for EV production.

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