# Automakers scramble to decode new U.S. EV tax credits
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-08-12
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: US Automakers Navigate Uncertainty Over $7,500 EV Tax
Meta Description: Congress is set to vote on a bill that could overhaul clean vehicle policies, affecting how EVs are bought, sold and built. Industry faces uncertainty.
URL: https://financedigest.com/automakers-scramble-to-decode-new-u-s-ev-tax-creditshtml

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By David Shepardson and Joseph White

WASHINGTON (Reuters) – U.S. automakers and dealers are scrambling to figure out if they can still [offer $7,500 tax credits](https://www.financedigest.com/credit-suisse-54-billion-lifeline-offers-limited-respite-to-global-banks.html "Credit Suisse billion lifeline offers limited respite to global banks") to would-be buyers of electric vehicles (EVs), as Congress prepares for final votes today on a bill that includes a top-to-bottom overhaul of Washington’s clean vehicle policies.

Under the $430 billion climate, [health care and tax](https://www.financedigest.com/are-there-tax-breaks-for-business-health-insurance.html "Are there tax breaks for business health insurance?") bill that the House of Representatives is set to vote on Friday, rules governing the current $7,500 EV tax credit aimed at persuading consumers to buy the vehicles would be replaced by incentives designed to bring more battery and EV manufacturing into the United States.

Manufacturers, dealers and consumers do not have answers to many basic questions about how the new rules will affect the [way clean vehicles aimed at consumers – including](https://www.financedigest.com/3-ways-to-safeguard-and-include-women-in-construction.html "3 ways to safeguard and include women in construction") fully electric and hybrid models – will be bought, sold and built, automakers, consultants and lobbyists said.

However, industry executives were more positive about proposed incentives of up to $40,000 per vehicle for larger commercial [electric vehicles, such as Tesla Inc’s Semi or electric commercial vans](https://www.financedigest.com/lack-of-electric-vans-opens-door-for-chinese-other-ev-makers.html "Lack of electric vans opens door for Chinese, other EV makers") developed by several manufacturers.

The provisions in the [Inflation Reduction Act](https://www.financedigest.com/fed-keen-to-be-well-positioned-to-act-on-inflation-other-risks-minutes-show.html "Fed keen to be ‘well positioned’ to act on inflation, other risks, minutes show") are “a powerful tail wind in the commercial space,” said RJ Scaringe, chief executive of Rivian which has an agreement to deliver up to 100,000 large vans to shareholder Amazon.com Inc.

The legislation brings “a significant change in value chain requirements, in a very short period of time, that affects an [industry where supply chain](https://www.financedigest.com/encouraging-female-talent-and-entrepreneurship-in-the-supply-chain-industry.html "Encouraging female talent and entrepreneurship in the supply chain industry") development … is measured in years,” said John Loehr, a [managing director with consulting firm](https://www.financedigest.com/exclusive-crypto-giant-binance-moved-400-million-from-u-s-partner-to-firm-managed-by-ceo-zhao.html "Exclusive-Crypto giant Binance moved 0 million from U.S. partner to firm managed by CEO Zhao") AlixPartners.

NO LONGER ELIGIBLE

The most immediate effect of the Inflation Reduction Act would be a ban on [tax credits for vehicles assembled outside North](https://www.financedigest.com/top-north-east-financial-adviser-firm-talks-corporation-tax.html "Top North East financial adviser firm talks corporation tax") America. That would mean about 70% of the 72 current EV and [plug-in hybrids](https://www.financedigest.com/mg-motor-launches-plug-in-hybrid-option-in-mexico-as-ev-race-heats-up.html "MG Motor launches plug-in hybrid option in Mexico as EV race heats up") on the U.S. market would no longer be eligible, said the Alliance for Automotive Innovation, which [warned the change](https://www.financedigest.com/uk-watchdog-warns-crypto-firms-to-prepare-for-advertising-rule-change.html "UK watchdog warns crypto firms to prepare for advertising rule change") “will surprise and disappoint customers in the market for a new vehicle” and “jeopardize” EV sales goals.

However, U.S. Transportation Secretary Pete Buttigieg told Reuters in an interview this week: “This is … going to be a very important long-term transformational policy to accelerate the EV revolution and to make sure it is a ‘Made in America’ EV revolution.”

[“Industry is capable of sometimes more than they will at first see,”](https://www.financedigest.com/airline-body-iata-sees-industry-recovery-now-in-2023.html "Airline body IATA sees industry recovery now in 2023") Buttigieg added.

The Biden administration must still write and finalize implementing regulations to handle some of the complex questions [raised by the quick rewrite of the tax credit](https://www.financedigest.com/how-to-raise-my-credit-score-40-points-fast.html "How to raise my credit score 40 points fast").

New restrictions on battery sourcing and critical minerals, along with [price caps](https://www.financedigest.com/eu-meets-to-try-to-break-gas-price-cap-impasse.html "EU meets to try to break gas price cap impasse") and income caps, take effect on Jan. 1, which will [potentially make all current EVs ineligible for the full](https://www.financedigest.com/embedded-finance-is-the-new-norm-in-banking-but-what-is-needed-to-unleash-its-full-potential.html "Embedded finance is the new ‘norm’ in banking, but what is needed to unleash its full potential? ") $7,500 credit.

A Congressional Budget Office forecast estimated as few as 11,000 EVs may qualify for the [tax credit](https://www.financedigest.com/tax-credits-for-eu-electric-vehicles-to-dominate-mondays-trade-talks-with-u-s.html "Tax credits for EU electric vehicles to dominate Monday’s trade talks with U.S") in 2023.

The domestic content requirements ratchet up over the [next six years](https://www.financedigest.com/next-years-geneva-auto-show-cancelled-organisers.html "Next year’s Geneva auto show cancelled -organisers").

Volvo Car North America said just one of its models that currently qualify for EV tax [credits will still qualify after the bill is signed](https://www.financedigest.com/telecoms-group-orange-signs-sustainability-linked-refinancing-of-6-billion-euros-syndicated-credit-facility.html "Telecoms group Orange signs sustainability-linked refinancing of 6 billion euros syndicated credit facility"). The only one in the short term that will qualify is the S60 Recharge, that is assembled in [South Carolina](https://www.financedigest.com/feature-as-u-s-flooding-worsens-south-carolina-redraws-risk-maps.html "FEATURE-As U.S. flooding worsens, South Carolina redraws risk maps"), and even that may not qualify after Jan. 1.

Several automakers, including startups Rivian and Fisker, this week began urging would-be customers to get off the fence and commit to buying [vehicles before the current](https://www.financedigest.com/automotive-natural-gas-vehicle-market-2015-current-and-future-demand-analysis-growth-and-forecast-by-2025.html "Automotive Natural Gas Vehicle Market 2015 | Current and Future Demand, Analysis, Growth and Forecast By 2025") rules are replaced.

BINDING CONTRACT

The bill does allow consumers to still get the credit if they buy before [Biden signs](https://www.financedigest.com/biden-signs-bill-to-boost-u-s-chips-compete-with-china.html "Biden signs bill to boost U.S. chips, compete with China") the bill into law, but must have a “written binding contract” to purchase.

Rivian encouraged would-be buyers in a letter to make $100 of their deposits non-refundable in order to [qualify for the credit](https://www.financedigest.com/qualifying-for-low-interest-credit-card-consolidation.html "Qualifying For Low Interest Credit Card Consolidation"). Rivian executives said Thursday customers are ordering R1 trucks and SUVs with average [prices of $93,000 – well above the cut-offs in the proposal before the House](https://www.financedigest.com/uk-house-prices-stabilise-after-four-month-fall-halifax-says.html "UK house prices stabilise after four-month fall, Halifax says").

We cannot guarantee that the IRS (Internal Revenue Service) will approve [tax credit eligibility](https://www.financedigest.com/eu-us-working-on-deal-to-make-ev-minerals-eligible-for-tax-credits-eu-official.html "EU, US working on deal to make EV minerals eligible for tax credits -EU official") as we interpret the terms of the Inflation Reduction Act,” Rivian cautioned in its letter.

Mercedes-Benz said it is “reviewing the proposal in anticipation of the new provisions becoming final in the coming week.”

European Union and South Korean [government officials on Thursday said they were concerned the domestic content and manufacturing requirements in the Inflation Reduction Act could violate World Trade Organization rules](https://www.financedigest.com/italys-rightist-government-tightens-rules-for-migrant-rescues.html "Italy’s rightist government tightens rules for migrant rescues").

U.S. [electric vehicle](https://www.financedigest.com/renault-to-reach-its-goal-on-integrated-electric-vehicles-chain-before-2030-ceo.html "Renault to reach its goal on integrated electric vehicles chain before 2030 -CEO") market leader Tesla and General Motors Co already sell their EVs without a federal tax credit, because they hit the 200,000 vehicle cap under the current law.

Tesla and GM may not [become eligible to offer tax](https://www.financedigest.com/becoming-data-ready-for-mtd-for-corporation-tax-aligning-vat-and-ct.html "Becoming data-ready for MTD for Corporation Tax: aligning VAT and CT") credits under the new law until Jan. 1. And even then, it is not [clear which models](https://www.financedigest.com/future-cheque-clearing-model-places-emphasis-on-speed-and-innovation.html "FUTURE CHEQUE CLEARING MODEL PLACES EMPHASIS ON SPEED AND INNOVATION") – if any – will get the full $7,500 by meeting requirements that 40% of battery minerals come only from North America, or countries with which the United States has free trade agreements.

The proposed subsidy limits would [hit hardest](https://www.financedigest.com/digital-divide-hits-rural-black-americans-hardest.html "‘Digital divide’ hits rural Black Americans hardest") on automakers and battery makers with corporate parents in China.

Starting in 2024, rules will take effect that make vehicles ineligible for any [credit if they have content from an “foreign entity of concern,” a term that could include Chinese firms](https://www.financedigest.com/some-credit-suisse-at1-bondholders-seek-legal-advice-law-firms.html "Some Credit Suisse AT1 bondholders seek legal advice -law firms").

[(Reporting by David Shepardson and Joseph White; Written by David Shepardson; Editing by Joseph White](https://www.financedigest.com/white-bullet-releases-ad-funded-piracy-report-for-world-intellectual-property-organisation-wipo.html "White Bullet releases Ad Funded Piracy Report for World Intellectual Property Organisation (WIPO)") and David Holmes)


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