Tax incentives for electric vehicles are going to cause confusion

Next year will be confusing for anyone buying an electric car.

A Law Effective Jan. 1, it will expand the list of vehicles eligible for federal tax credits of up to $7,500 in ways officials and automakers are still trying to sort out.

The Biden administration released Thursday New list of cars It will be eligible for credits. The Treasury Department said the list, which includes models from Ford Motor, Nissan, Rivian, Volkswagen, Stellantis, Tesla and Volvo, is not exhaustive and will be added “in the coming days and weeks.”

Although they were not included in the list, General Motors’ models, which exceeded the limit on the number of cars eligible for subsidies under the old law, are expected to become eligible again in January under the new inflation-reduction act. , eliminates the cap. But imported cars that qualified under the old law no longer qualify; This includes vehicles manufactured by brands like Hyundai and Kia.

Even if the list released Thursday is complete, it will only be good for three months as officials plan to implement other parts of the law in March. That’s when the Biden administration plans to put in place new rules aimed at forcing automakers to buy batteries and raw materials from suppliers in the U.S. and its trading allies. After those rules take effect, few if any electric cars will qualify immediately, auto experts said.

The Inflation Relief Act, signed by President Biden in August, was designed to promote battery-powered vehicles while providing incentives to companies that manufacture them in North America. It is designed to exclude competitors such as China and Russia from the supply chain.

But the details of how to apply those principles were left to the Treasury, which has just four months to work through the brain-numbing technical details not fully spelled out in the legislation.

For example, for a vehicle to qualify for credits, at least 40 percent of the minerals in its battery, measured by their value, must come from the United States or trading partners. By 2027, the quota will rise to 80 percent. But tracking the origin of raw materials is very difficult. The law does not specify which countries should be considered trading partners.

A preliminary list released by the Treasury on Thursday includes countries such as Chile, Nicaragua and Singapore that have trade agreements with the United States. But it excludes the EU. No trade agreement with US. (Officials later left open the possibility of countries being added to the list.)

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Federal regulators face a dilemma. If they interpreted the law too strictly, carmakers wouldn’t try to qualify for the credits. If they interpret the law too liberally, it may miss one of its main goals — forcing automakers to create jobs in the U.S. and divert supply chains away from China or other geopolitical adversaries.

China dominates the processing of battery raw materials such as lithium and graphite, and controls mines in the Democratic Republic of Congo, the world’s source of most of it. CobaltAn essential battery ingredient.

Beginning in August, only cars assembled in the United States, Canada or Mexico qualify for the full $7,500 credit. On Jan. 1, the law repeals the 200,000-vehicle limit per manufacturer under the old law.

After March, or whenever the Treasury Department decides how to enforce limits on imported battery minerals and battery components, the rules will become more stringent. No vehicle immediately qualifies.

In other words, car buyers may have a brief window — from January to March — to collect the full credit. Analysts say they may have to wait months or years for mines in allied countries to start producing ore, refineries to be built and battery assembly lines to start rolling domestically.

Pablo Di Si, chief executive of Volkswagen of America, which makes electric vehicles in Chattanooga, Tenn., and Mexico, has appealed to give automakers a few years to adapt. “When you have an industry that’s disrupted the way we’ve disrupted it, you can’t make these sudden changes in technology, manufacturing, mineral extraction,” he said in an interview.

With Republicans likely to soon control the House, Congress is considered unlikely to reconsider the legislation. Despite Democratic control of both chambers, the deflation legislation was passed only after Senate Majority Leader Chuck Schumer made major concessions to Senator Joe Mnuchin III, D-West Virginia. Republicans In opposition to it.

But it appears the Treasury will try to give car makers and buyers a break by flexibly interpreting the law. For example, a battery component assembled in the United States, Canada or Mexico would pass through even if it was made from imported parts, the Treasury Department said in a preliminary report Wednesday.

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Some aspects of the law are very clear. Well-heeled car buyers — defined as adjusted gross income less than $150,000 for individuals and $300,000 for couples — are not eligible for the credits.

Sport utility vehicles, vans and pickups are eligible for credits only if the manufacturer’s suggested list price is less than $80,000. For sedans and other vehicles, the price range is $55,000. For plug-in hybrids, the amount of tax credit depends on the battery size at least until March.

That means the company’s expensive electric vehicles Mercedes-Benz And Clear They do not qualify even if they are made in the USA. Maybe their sticker prices are too high or their customers are too rich.

Another issue is how to classify vehicles. Officials define an SUV more narrowly than carmakers’ marketing departments.

There is a loophole in the law that could provide a way for consumers to avail the credit even for vehicles that do not meet domestic proof requirements.

The act exempts commercial vehicles from mineral and battery resource quotas, and requires the vehicles to be manufactured in North America. Auto industry lobbyists want the administration to interpret that rule to mean that cars purchased by leasing companies are commercial vehicles.

If that argument flies, and the Treasury Department indicated Thursday, rental companies, ride-share services and leasing companies could collect credits on imported vehicles or those with foreign parts and pass the savings on to their customers.

Mr. Trump accused the Biden administration on Thursday of bowing to industry pressure and “undermining policies designed to shore up our energy and manufacturing supply chains to protect our national security, reduce our dependence on foreign adversaries and create jobs here.” In America.”

Mr. Manchin said.

An exception for leasing companies can help mollify Asian and European allies Those who complained that the inflation-reduction law discriminated against their car makers. South Korean leaders are particularly distressed.

South Korea is a close military ally of the United States, and Hyundai is investing $5.5 billion in Georgia to develop batteries and electric vehicles. But the plant, which employs 8,000 people, won’t start mass-producing vehicles until 2025.

Until then, the rules were a blow to Hyundai’s ambitions in the US, where its Ioniq 5 was the most popular electric model. In the first nine months of the year, Hyundai and its sister brand Kia accounted for nearly 8 percent of the U.S. electric vehicle market, behind Tesla at 64 percent, according to Kelly Blue Book. Hyundai has asked that its vehicles remain eligible for the credits until the end of the Georgia operation, but U.S. officials are unlikely to grant that request.

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For the first time, used electric vehicles will be eligible for a credit of up to $4,000. There are restrictions. The credit only applies to vehicles that are at least two years old and sold for less than $25,000. Buyers cannot earn more than $150,000 if they file taxes as a married couple, and they cannot earn more than $75,000 if they file separately. The credit is applicable only once per vehicle, and buyers cannot avail the credit more than once every three years.

However, the credit means that electric vehicles should be accessible to middle-income buyers. “It has the potential to change the way the used car industry works,” said Scott Case, chief executive of Recurrent, a company that tracks the used electric vehicle market.

Buyers confused by these new rules will have ways to find out if the vehicles they are considering qualify for tax credits. Website of Continuity Allows buyers to find out if a used car is eligible by typing in the Vehicle Identification Number.

One way buyers can make sure they get the credit is to insist that dealers apply it to the purchase price. This was not allowed under the old rules, but will be possible from 2024 onwards. The change will help lower-income earners get the full credit.

For all the complaints about the way the inflation-reducing law is written, automakers generally like the law. Speaking to investors in October, Ford Chief Executive Jim Farley noted that the law includes subsidies for battery production separate from tax breaks for car buyers worth $7 billion to the company and its suppliers through 2026. Subsidies should help lower the cost of electric vehicles.

The Deinflation Act will have “a number of positive impacts for our customers and for Ford,” said Mr. Barley said.

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