An asterisk is placed at the end of the tax credit for electric cars that is wrapped in landmark US climate legislation.
The looming hiatus for the tax credit may make EVs less affordable — at least temporarily — as the Biden administration aims to wean Americans off internal combustion engines. It is a move to promote lower-carbon transport and encourage domestic battery car manufacturing.
President Joe Biden signed a law requiring that any EV sold in America must be assembled in North America. The requirements grow stricter in 2024, when eligible EVs must have battery components not made or assembled “by a foreign entity of concern”, which includes China, the dominant battery producer.
In 2025 those batteries must exclude “critical minerals” extracted, processed or recycled from the same foreign countries. A growing share of the batteries would have to come from North America and selected trade partners.
The North American final assembly rule published a list of 21 models that are eligible for credits for the rest of 2022. According to the Alliance for Automotive Innovation, a manufacturer association, 72 EVs are currently available for purchase in the US.
The list will be further reduced by the impending restrictions on battery components and minerals. “If the Treasury Department interprets the law, strictly as written, that would actually in my view disqualify all vehicles,” said Jay Turner, a professor of environmental studies at Wellesley College who researches the role of batteries in the clean energy transition.
A Treasury official said that changes to the tax credit will strengthen US clean energy supply chains and the country’s energy security, adding that the department expects a range of credit-eligible vehicles to be available beginning in 2023, including when the battery-related provisions take effect in 2024 and 2025.
No one can predict that the US EV market would be affected by the new manufacturing requirements. The new law is officially known as the Inflation Reduction Act. It was widely supported by the US auto industry. Ford, which announced a $14bn investment in EVs/batteries in the USA, was one of the supporters.
“While its consumer tax credit targets for electric vehicles are not all achievable overnight, the bill is an important step forward to meet our shared national climate goals and help strengthen American manufacturing jobs,” the Michigan-based carmaker said.
One reason is that EV sales have grown even under the old tax credit system. Incentives were stopped once a manufacturer sold more then 200,000 electric cars. This was what happened to Tesla in 2018. Additionally, the 200,000-vehicle cap on electric vehicles will be removed at the start 2023.
According to BloombergNEF (a clean-energy research organization), US EV sales increased from 319,554 to 656,845 by 2019, to 1.2 million in 2021.
“Many EV buyers today are buying [them] knowing that they are not likely to get a federal tax rebate” because of the sales caps, said Seth Goldstein, an analyst at Morningstar.
The law extends EV tax credits to 2032. By then, 30 to 50 per cent of EVs could qualify, said BloombergNEF analyst Colin McKerracher, who said the law will provide “a significant boost” for the US EV market.
Bernard Swiecki is the Center for Automotive Research’s research director. He said that the law is a net win for electric vehicle transition. Swiecki stated that some consumers may be priced out if the tax credit does not apply to the cars they desire.
“My big question mark is: will the automakers who produce vehicles that don’t qualify drop prices to at least partially offset [the absence of a tax credit]?” he asked. Swiecki pointed out that General Motors and Tesla both lowered their prices once they reached the 200,000-vehicle limit.
The US industry is worried about the impending restrictions on the source of battery components and minerals.
China refines 73 per cent of the world’s cobalt, 68 per cent of its nickel, 59 per cent of its lithium and 40 per cent of its copper, making it the “dominant global player in refining strategic minerals”, according to a Brookings Institution report.
China also makes most of the world’s mineral-rich battery cell components, including 70 per cent of cathodes, which boost the amount of power a battery can deliver. The nation’s dominance in mineral refining and battery manufacturing means that it plays a role in the production of every EV currently sold in the US, experts said.
Senator Joe Manchin, a Democrat whose support was critical to the bill’s passage, had been outspoken against supply chains based in China. “I’m going to do everything I can to stop it because I think it’s stupid, because we are not able to protect our investments in the country,” he said in June.
Manchin’s “staff got carried away with the [manufacturing] goals they were trying to set” instead establishing ones that “will be too hard to meet” in the timeline set out by the act, said Dennis Blair, a former director of national intelligence under US president Barack Obama who now chairs Safe, an energy security organisation.
Having more expensive EVs would mean “less energy security for the country” in the short term, Blair said.
Though the Alliance for Automotive Innovation reported that automakers have invested over $100bn for EV production expansion in the US, “there’s no way the supply chain is going to reach us” over the next two years, said Mike Ramsey, an analyst at Gartner.
However, he and other analysts don’t believe that US EV deployment will be hampered by tax credit restrictions. This is mainly due to the fact that consumers have shown their willingness to pay for EVs.
That Tesla was able to gain such a large market share “without access to the tax credit really tells you that making vehicles that consumers actually want to buy is still more important than making vehicles that qualify for the tax credit”, McKerracher said.
Read the full article here
