Just when we all thought the Inflation Reduction Act’s EV tax credit rules couldn’t get more confusing, a new proposal could make accessing those credits even more difficult. Democratic West Virginia Sen. Manchin’s office told The Autopian yesterday that the senator will propose a bill that would severely limit the accessibility of credits and likely make any buyers who took advantage of the rules this year have to give the credits back. Why is this happening?
When the Inflation Reduction Act, or IRA, was signed into law, it added a new caveat to any EVs reaching out for the tax credit:Not only do the vehicles need to be made in North America, at least 40% of the battery’s mineral content needs to come from a U.S. free trade partner (which excludes Russia, China, and Venezuela, to name a few key sources of rare earth materials). That rule allows someone to access 50% of the credit, the other half requires at least 50% of a car’s battery’s componentry to be assembled in North America. Each of those percentages ratchet up 10% percent each year until they both reach 100%.
Those new caveats haven’t gone over all that well with several automakers, other countries, and EV buyers. There’s a lot of confusion regarding how to even correctly quantify and identify the percentage of an EV’s battery mineral content or the source of assembly for many of the smaller pieces that make up a battery. In order to clarify this confusion, the U.S. Treasury Department said it would issue guidance by March 31. Until the guidance is delivered, the mineral and production requirements of the IRA are not supposed to take effect. It’s been interpreted that, in the meantime, EVs below the price cap qualify for the full $7,500 no matter the source of the battery.
Dubbed the American Vehicle Security Act (AVSA), Manchin’s proposed bill would amend the Inflation Reduction Act, ensuring that the law’s battery mineral requirement would apply retroactively.
According to Manchin’s office, if someone’s EV is found to be ineligible based on battery construction or mineral sourcing, that someone wouldn’t get that credit, or they’d have to pay it back if they somehow received it already.
Manchin’s office said the senator—who is chairman of the Energy and Natural Resources Committee—is concerned about the EV supply chain, insisting that pushing the deadline back may give automakers a way to wriggle out of other parts of the bill.
Under the proposed AVSA bill, the link between the Treasury’s (now forthcoming) guidance and the IRA’s battery sourcing requirement would be removed. The result of this law seems to be that any EV that didn’t meet the IRA’s battery sourcing requirement on Jan. 1 wouldn’t qualify for a tax credit. So if you buy (or already bought) a vehicle in that window of Jan. 1 and whenever the Treasury’s guidance will be released, if the battery was found to not meet the IRA’s qualifications, the car won’t be eligible for the tax credit.
Manchin’s office said it “hadn’t seen any analysis” that the proposed new bill could limit the number of cars eligible for tax credits.
“There is a possibility that some could receive a portion of the credit,” a staffer said, but the office is adamant that as of right now very few models will likely qualify for the mineral sourcing and processing portion of the tax credit.
Nothing is for sure until the U.S. Treasury office releases its guidance on how to determine the battery sourcing and manufacturing content. Here’s Manchin’s office in a statement:
It is unacceptable that the U.S. Treasury has failed to issue updated guidance for the 30D electric vehicle tax credits and continues to make the full $7,500 credits available without meeting all of the clear requirements included in the Inflation Reduction Act. The Treasury Department failed to meet the statutory deadline of December 31, 2022, to release guidance for the 30D credit and have created an opportunity to circumvent stringent supply chain requirements included in the IRA.
In a question-and-answer with The Autopian, The Wall Street Journal and other outlets, Manchin’s office said it hadn’t reached out to any automakers, politicians, or even the U.S. Treasury department.
So what’s Manchin’s reasoning? Here’s what he said in a statement:
The IRA is first-and-foremost an energy security bill, and the EV tax credits were designed to grow domestic manufacturing and reduce our reliance on foreign supply chains for the critical minerals needed to produce EV batteries. The United States is the birthplace of Henry Ford who revolutionized the automotive industry with the Model T. Being an automotive powerhouse is in our blood which is why it is shameful that we rely so heavily on foreign suppliers, particularly China, for the batteries that power our electric vehicles.
We cannot continue down this path. I’ve said it before, and it bears repeating that we can’t have national security without energy security and energy independence. The IRA and the EV tax credits must be implemented according to the Congressional intent to ensure the United States, as the superpower of the world, is not beholden to countries that don’t share our values.
This could have a potentially devastating effect on those who ran out and purchased an EV and were under the impression that they’d be eligible for tax credits. Given the fire sale price reduction of the Tesla Model 3 and Model Y, there are likely thousands of buyers who bought a car thinking it would qualify.
Although North America continues to grow its battery manufacturing base and mineral processing capacity, many plants are still very much in their infancy. Some will take years to get up and running, under best-case scenarios. In the face of reportedly softening EV demand and inherently higher prices of EVs, this new bill doesn’t seem like it’ll do anything but make a few thousand EV buyers upset that their car has retroactively been made more expensive for reasons that they probably won’t understand.
According to Manchin’s office, no one outside of the office was consulted about the bill. The office also said it’s hoping for bipartisan support, though it’s unclear how likely this is given the impact it’ll have on car buyers. Still, the IRA wouldn’t have passed without Manchin’s help, so we’ll have to wait and see.
Whatever the case, if you’re in the market for an EV and are depending on that tax credit, maybe it’s wise to wait until things settle down a bit, and the laws are fully fleshed out.
Photo: Senator Manchin’s Office, Tesla, US Congress
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