By David Shepardson and Joseph White
(Reuters) – A proposal by U.S. Senate Democrats to impose income, price and national content conditions on electric vehicle tax breaks could initially significantly reduce the number of eligible electric vehicles, the budget office said on Wednesday. of Congress.
The CBO estimate said tax credits for electric vehicles in a $430 billion climate and energy bill would cost taxpayers just $85 million in 2023, the equivalent of about 11,000 vehicles if all received $7,500 in credits.
Automakers and their home states, including Michigan, are pressuring Sen. Joe Manchin to revise proposals that would cut or eliminate tax subsidies for electric trucks that cost more than $80,000, ineligible households that earn more than $300,000 a year and would link tax breaks to ambitious and growing levels. North American production and manufacturing of battery minerals.
The proposed domestic content rules aim to steer the electric vehicle industry away from reliance on China and boost North American and American investment in minerals and battery manufacturing. The income limits address concerns that the current law is a subsidy for the wealthy.
Privately, automaker executives said the measure could hamper electric vehicle sales in the short term. They said they could quickly lose access to tens of thousands of credits that an existing law makes available with few restrictions on the first 200,000 vehicles sold before it is phased out. They said it would hit automakers down the line.
So far, Manchin has refused to reconsider his proposals.
“I don’t believe we should build a mode of transport on the back of foreign supply chains.” Manchin said Tuesday.
The subsidy rules, buried in the details of the Senate Democrats’ climate and energy plan agreed to by Manchin and Senate Majority Leader Chuck Schumer, complicate what had been a straightforward tax credit offered to buyers of most electric vehicles – although General Motors and Tesla have already hit the current tax relief cap of 200,000 vehicles and are no longer eligible.
Industry officials have said it will be nearly impossible to meet domestic content rules requiring 50% of battery components to be made in North America by 2024 and 60% by 2024-25.
For 2022 to 2026, the CBO estimates the government would spend $1.78 billion on subsidies for the purchase of new electric vehicles – suggesting that budget officials expect a total of just 237,000 electric vehicles be eligible during those five years.
GM alone said it plans to sell 400,000 electric vehicles by the end of 2023. US electric vehicle market leader Tesla, Ford Motor Co, Volkswagen AG, Hyundai, Kia and Mercedes-Benz, among others, also plan to sell electric vehicles in large volume.
Auto dealers are concerned that they “will have to explain to consumers why these incentives are not available to them,” Cody Lusk, president of the American International Automobile Dealers Association, said Wednesday.
The Manchin-Schumer proposal would also create a new $4,000 tax credit for used electric vehicles. The CBO estimates this would cost the government $1.35 billion over 10 years. This would result in tax breaks for buyers of approximately 337,500 used electric vehicles over this period.
Democrats are split on the proposals, even as Republican lawmakers close ranks in the opposition.
Sen. Tina Smith, a Democrat, said Wednesday that the national content targets “are aggressive. But we have to be aggressive…to build that domestic clean energy capacity here in the United States.” Smith said automakers “shouldn’t expect or anticipate that we’re going to reopen this bill in any meaningful way to make changes to it.”
Michigan Democratic Sen. Debbie Stabenow said she is still pushing to change the proposals.
“It’s a very heavy and unenforceable credit once all the restrictions are in place,” Stabenow told Reuters. “There are ongoing conversations.”
(Reporting by David Shepardson, Joseph White and Nichola Groom; Editing by David Gregorio)