If you’ve been thinking about getting an electric vehicle (EV) but have been worried about the cost, you may be in luck. The cost of purchasing an EV could get way cheaper now that Democratic Senators Joe Manchin and Chuck Schumer have agreed on the Inflation Reduction Act — a climate change, drug cost, and tax bill all rolled into one. Here’s what you need to know.
A new agreement has been reached between Schumer and Manchin that would bring back the ability for automakers to offer their customers federal tax credits for the purchase of electric vehicles. The new deal would also introduce another tax credit.
“Under current regulations, buyers of electric vehicles get a $7,500 tax credit when purchasing an electric vehicle, but that full credit is limited to the first 200,000 electric vehicles sold by any given manufacturer,” CNN explains. “After that, the tax credit amount is reduced over the subsequent year and finally phased out altogether. The tax credits, and the cap on sales, also apply to plug-in hybrid electric vehicles.”
That would change under the new bill — the 200,000 EV cap would be lifted. If the bill is passed, the new rules would expire in 2032.
What else would change with the new bill?
- Buyers of pre-owned EVs would be eligible for a federal tax credit of up to $4,000.
- Buyers of new EV’ would get a $7,500 federal tax credit on North American-made cars.
- Income qualifications and sticker price limits will be in place to ensure the tax credits are directed to regular customers, not just wealthy buyers. The limits would be $55,000 for sedans and $80,000 for SUVs and trucks.
- Owners of commercial fleets vehicles would be eligible for EV credits.
- The credits can be used as a rebate at the time of purchase — which would make the purchase more affordable right off the bat, not just a few months later at tax-filing time.
The proposed legislation puts a significant focus on North American-made products. CNN explains that the bill would set limits on which EVs qualify for credits, per Axios. Specifically, the vehicles need to be manufactured in North America, and at least 50% of the battery must be made in North America to qualify for the tax credits. The bill also includes billions of dollars to scale up the domestic EV supply chain.
There is some concern about how the country can scale up the supply chain in time to support manufacturing. E&E News reports that some climate activists are concerned about the domestic supply chain since it currently doesn’t exist.
“Minerals required to make market-ready EV batteries — lithium, cobalt, graphite, and nickel — are primarily mined, refined, and processed in China and Russia or in less adversarial nations like the Democratic Republic of Congo and Indonesia that aren’t parties to U.S. free trade agreements,” they warn.
The new tax credit rules, if passed into law, would expire in 2032. Other aspects of the bill would pump billions and billions of dollars into manufacturing electric vehicles.