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WASHINGTON, Aug 5 (Reuters) - Most electric-vehicle models would be ineligible for a $7,500 tax credit for U.S. buyers under a Democratic proposal in the U.S. Senate, a group of major automakers said on Friday.

Automakers have been privately expressing concern about the proposal's increasing requirements for vehicles' batteries and critical-mineral contents to be sourced from the United States.

John Bozzella, heads of the Alliance for Automotive Innovation that represents General Motors (GM.N), Toyota Motor (7203.T), and Ford Motor among others, said a July 27 proposal by Senators Chuck Schumer and Joe Manchin would make 70% of 72 U.S. electric, plug-in hybrid and fuel-cell EVs ineligible upon passage.


"None would qualify for the full credit when additional sourcing requirements go into effect," he said.

Car makers want significant changes to the proposal, which is part of a larger drug pricing, energy and tax bill.

Without the tax credit, the vehicles become more costly for American consumers, and this could impact demand and sales. It could also slow progress toward President Joe Biden's target to have half of all new vehicles sold be electric or plug-in hybrid models in 2030.


An analysis by the Congressional Budget Office on Wednesday suggested just 11,000 new EVs would use the credit in 2023.

Manchin and Schumer's offices did not immediately comment. The Senate could vote as soon as Saturday on the bill.

"I don't believe that we should be building a transportation mode on the backs of foreign supply chains," Manchin said on Tuesday.

The bill includes rising requirements for the percentage of battery components originating from North America based on value. After 2023, it would disallow batteries with any Chinese components.


"A more gradual phase-in of the battery component, critical mineral and final assembly requirements – that better reflect current geopolitical, sourcing and mineral extraction realities – will preserve the credit for millions of Americans," Bozzella wrote.

Automakers want to expand countries from which batteries, battery components and critical minerals can be sourced to include NATO members, Japan and others.

The new EV tax credits, which would expire at the end of 2032, would be limited to trucks, vans and SUVs with suggested retail prices of no more than $80,000 and to cars priced at no more than $55,000. They would be limited to families with adjusted gross incomes of up to $300,000 annually.
Source:
U.S. automakers say 70% of EV models would not qualify for tax credit under Senate bill | Reuters
 

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Update:

No electric vehicles on the market today qualify for the new EV tax credit

Congress is poised to approve newly expanded tax credits for electric vehicles, but the rules are written in such a way as to effectively disqualify every EV that’s currently on the market today.

That’s because most EVs run on lithium-ion batteries that are mostly made in China. The nation has a lock on some 76 percent of the battery market today (the US only represents 8 percent). And to get a deal passed in a deadlocked Senate, Democrats agreed to provisions that would require eligible vehicles to use batteries that are made in North America.

The Inflation Reduction Act of 2022, which passed the Senate this weekend in a party-line vote, would require batteries to have at least 40 percent of materials sourced from North America or a US trading partner by 2024 in order to be eligible for a $7,500 tax break. By 2029, battery components would have to be 100 percent made in North America.

DEMOCRATS AGREED TO PROVISIONS THAT WOULD REQUIRE ELIGIBLE VEHICLES TO USE BATTERIES THAT ARE MADE IN NORTH AMERICA
Batteries that contain minerals that “were extracted, processed, or recycled by a foreign entity of concern,” which is defined as a state sponsoring terrorism or countries blocked by the Treasury Department’s Office of Foreign Assets Control, would be ineligible for the credit. China is listed as a “foreign entity of concern” by the federal government.

Democrats, including West Virginia Senator Joe Manchin, who negotiated the deal in secret with Senate Majority Leader Chuck Schumer, are running on a tough-on-China message this year. But the auto industry says that the new requirements would basically disqualify every EV on the market today.

According to the Alliance for Automotive Innovation, the auto industry’s main lobbying group, there are currently 72 EV models available for purchase in the United States, including battery, plug-in hybrid, and fuel cell electric vehicles. Of those models, 70 percent are ineligible for the tax credit when the bill passes. And by 2029, when the additional sourcing requirements go into effect, none would qualify for the full credit.

“The $7500 credit might exist on paper, but no vehicles will qualify for this purchase incentive over the next few years,” John Bozzella, president and CEO of the alliance, said in a blog post. “That’s going to be a major setback to our collective target of 40-50 percent electric vehicle sales by 2030.”

Bozzella said the auto industry agrees that the domestic supply chain needs serious investment — but not at the expense of customer incentives. EVs are typically more expensive than regular gas-powered vehicles, and experts believe that tax credits are needed to bolster sales until battery costs are low enough to trigger parity with internal combustion engine vehicles.

Automakers could ask for waivers from the requirements, given the precedent that allowed many manufacturers to avoid “Buy America” rules that were enacted as part of last year’s bipartisan infrastructure law, according to Politico. For example, the law requires that new road and bridge projects use domestically produced steel, but most states are able to waive those requirements in favor of procuring cheaper steel from overseas.

The Zero Emission Transportation Association, which represents EV makers like Tesla and Rivian, isn’t seeking waivers — yet. The lobbying group says that compliance deadlines could be extended by a year or more in order to allow the industry more time.

It won’t be a completely impossible task. Tesla uses local suppliers for the majority of components in its electric vehicles, with 65 percent of the parts used to make the Tesla Model 3 (Long Range, Standard Range, and Performance) sourced from the US and Canada. The EV maker has four models that are at the top of the annual automotive index measuring the amount of US-manufactured content in vehicles.

But it will still take time before the US can begin to challenge China’s dominance in the battery market. Ford and South Korean battery manufacturer SK Innovation are spending $11.4 billion on several new factories in Tennessee and Kentucky, while General Motors is planning four new battery factories in the US with partner LG Chem. Toyota said it would construct a $1.29 billion facility in North Carolina. And Stellantis, parent company of Dodge, Jeep, and Chrysler, selected Indiana as the site for its first battery factory.

IT WILL STILL TAKE TIME BEFORE THE US CAN BEGIN TO CHALLENGE CHINA’S DOMINANCE IN THE BATTERY MARKET
In Europe, Volkswagen is aiming to have six battery cell production plants operating by 2030. And Tesla just finished its battery factory in Berlin, which would produce 250GWh — roughly equivalent to the current world battery cell production capacity.

Globally, battery production is expected to grow from 95.3GWh in 2020 to 410.5GWh in 2024, according to GlobalData, a data and analytics company.

Republicans, who uniformly oppose the Inflation Reduction Act, tried to make the supply chain requirements even stricter. According to Politico, Senator Marco Rubio (R-FL) introduced an amendment that would require 100 percent of battery materials to be sourced in North America immediately, rather than allow a phase-in period. The amendment, though, did not pass the Senate.
Source: No electric vehicles on the market today qualify for the new EV tax credit - The Verge
 

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These politicians in DC never cease to amaze me. All for green energy and conservation, but no idea on how to write a bill or legislation that actually encourages or incentivizes it. The language as written actually discourages a lot of folks who are financially on the fence regarding EV's. I am one of them, and without the tax credit I simply cannot afford one no matter how much I love them or believe in the technology. It boggles the mind that there are no adults running our country that can do this right.

How ironic would it be if the bill passes with the language written in it "as is" and they find out that the upper / middle class folks who want to be greener and not buy gas again decide a hybrid is "good enough" for now since most (or all) EV's won't be discounted. I thought for sure the language in the Senate bill would be changed when they all realized how steep a hill most - or all, manufacturers would have to climb to offer the point of sale rebate, but it wasn't revised before the vote yesterday.

If the House is so giddy over the Senate bill victory to keep the language "as is" so it doesn't have to go back to the Senate for a reconciliatory vote, then I fear this new law would have done more damage to the adoption of EV's in the short term than we could've imagined. Now I would think a bill this poorly written would HAVE to change, but then again nothing surprises me in this day and age. It truly worries me that common sense is just not that abundant in DC, and that someone doesn't realize this.

I did my part - I wrote Senator Maggie Hassan (D-NH) and her counterparts in Congress via Consumer Reports and laid this out in a nice and consise 2-3 paragraph email. I guess we'll see where things end up, but it makes me think that Fisker's lifeline for Ocean purchasers may the the last one thrown anyone's way to help the affordability question. Me, financially I'm trying to figure out if its the Ocean or the PEAR (I have reservations for both). And yes, lifeline...ocean...you get it.

Right now, my gut is telling me to stand down and wait...I just don't know enough about either vehicle. What I've seen I love (and I LOVE the business model), but the base Sport Ocean would be the most I've ever spent on a car and the pricing on options is not out (paint color & winter package at least...plus destination charge). The pricing on the PEAR is more in my budget, but I really wonder if a phone maker (that makes really good phones) can make the leap to a great car manufacturer.

I do business resilience and risk management for a Fortune 100 manufacturing company (we are keeping Ukrainians alive and safe), and my risk appetite is telling me to push that tiramisu to the side for now, until I find out more about the ingredients. So that is where I'm at, and I truly hope things change when it comes to the final language in this bill that eventually passes Congress. And if Fisker needs an individual like myself, I don't know that the raise & promotion I asked for last week is coming through.
 

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My biggest concern is that this will be a barrier of entry for new brands in the U.S. Right now, the EV market for the U.S. is pathetically low (9% of global EV sales vs U.S. share of 23% of all auto sales). By introducing such draconian incentives, it will just keep auto manufacturers from importing vehicles to the U.S. as they are perfectly fine competing for the remaining 91% (and will likely increase) of the market, This will greatly limit the options for sale in the U.S. and will hurt the U.S. consumer.

Ironically, I do feel the Chinese will introduce more models in the U.S. subsidized by the Chinese government (funded by import tariffs of U.S. products). They have done it with other products so can see this easily happening.
 
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