Under a new green energy bill agreed to by Democratic Sens. Chuck Schumer and Joe Manchin, automakers like Tesla and General Motors would regain the ability to offer federal tax credits to customers who buy their electric vehicles.
Hurdles to the bill’s passage remain, but if it becomes law it could cut the price of electric cars for many Americans, which are relatively more expensive than gasoline vehicles, by reviving tax credits for some manufacturers’ vehicles and introducing a new one as well.
Under current regulations, buyers of electric vehicles get a $7,500 tax credit when purchasing an electric vehicle, but that full credit is limited to the first 200,000 electric vehicles sold by any given manufacturer. After that, the tax credit amount is reduced over the subsequent year and finally phased out altogether. The tax credits, and the cap on sales, also apply to plug-in hybrid electric vehicles.
The proposed legislation would remove the 200,000 vehicle-per-manufacturer cap, in a win for some of the biggest names in the EV market. Automakers like Tesla and GM that have already sold more than 200,000 electric cars can no longer offer the tax credits, essentially raising the price of their vehicles compared to competitors. Other automakers are close to losing access to the credits, too. Toyota, for instance, can currently only offer reduced tax credits.
“We remain hopeful that Congress will advance legislation to address energy and economic security that includes a modification to the EV tax credit removing the per-[automaker] cap,” said GM spokesman Matt Ybarra. “We will review the draft text and look forward to working with Congress on these provisions that would ensure a level playing field for all [automakers].”
The proposed legislation would put more limits on the vehicles that qualify for the credits, though. For instance, there are requirements for the vehicles and batteries to be manufactured, at least in large part, in North America. At least 50% of the battery components must be made in North America, which rises 10% a year to 100% of battery components by 2029.
Also, there are limits on income for buyers to quality for the tax credits. They can have taxable income of no more than $300,000 annually for those filing jointly, or $150,000 for those filing as individuals.
Also, there are price caps on the vehicles that will qualify. For plug-in trucks, vans and SUVs, the manufacturer’s suggested retail price must be no more than $80,000; for all other types of vehicles, like sedans and sports cars, the price limit would be $55,000.
Rules that distinguish between different vehicles types, for purposes of Environmental Protection Agency regulations, can be somewhat opaque, however. This allows automakers to make vehicles that may appear similar to a wagon but actually qualify legally as SUVs. The Subaru Outback, for instance qualifies as an SUV thanks, in part, to its higher-than-ordinary ride height, despite its perception among some as a wagon. The Honda HR-V and Nissan Rogue Sport, on the other hand, are classified by the EPA as compact wagons. The bill calls for the creation of rules that would be similar to those used by the EPA.
One of the most important changes, though, is that EV buyers wouldn’t have to wait until they file their taxes to get the tax credit, said Sam Abuelsamid, an electric vehicle analyst with Guidehouse Insights. Instead, the incentive would be treated like a rebate and applied at the time of purchase at the dealer, he said.
“By taking it off the top, you can actually lower your monthly payment,” he said.
The bill also includes a tax credit for the purchase of a used electric vehicle. Currently, tax credits are only offered for a new EV, something that critics have argued favors the wealthy who can afford expensive brand new vehicles. Under the bill, buyers of previously-owned electric vehicles would be eligible for a $4,000 credit or 30% off the cost of the vehicle, whichever is less. But there are caveats here, too. Used EVs can only cost a maximum of $25,000 to qualify for a tax credit, and only if it’s sold by a licensed car dealer; it must also be the first time the car has been re-sold.
These new tax credit rules, if passed into law, would expire in 2032.
Toyota and Tesla did not immediately respond to requests for comment on the new legislation. Tesla generally does not respond to media inquiries.