Now that the U.S. Senate has passed the Inflation Reduction Act and the bill is most likely going to be passed by the House, it’s time to take a look at how this will affect automakers.
“Some will win, but some will also lose,” says Matt Myftiu, a senior practitioner of Marx Layne’s automotive practice.
The big news: tax credit will continue for EVs
Consumers will be happy to know the soon-to-be law will extend the consumer income tax credit to $7,500. Lawmakers also added a new credit of $4,000 for consumers purchasing used EVs.
It’s not that straightforward, however. The bill caps the maximum price of eligible cars at $55,000. That leaves out people wanting to buy Tesla’s Model 3 and Model S, and X vehicles. Truck and van buyers will receive the credit if the price of the EV is lower than $80,000.
Batteries must be made in the U.S.A.
For automakers to enjoy extended credit, at least 40% of battery components must come from U.S. factories or its free-trade partners. It also requires that all batteries be made in the U.S. by 2029 by phasing out Chinese parts and minerals starting in 2024.
It’s unclear whether any current U.S. battery plant can meet the requirements.
Outspoke Tesla CEO Elon Musk said domestic automakers will fare well if they can figure out how to mine for lithium and other battery components by saying it’ll be “like minting money.”
Simon Mores, CEO of Benchmark Minerals, said it is highly unlikely countries will be able to cover the gap by not using Chinese components beginning in 2004. Mores said that making up that gap will take the better part of a decade.
What about dealerships and the Inflation Reduction Act?
It’s complicated. As @WholeMarsBlog pointed out, dealerships can benefit from subsidies. If someone buys an EV from a dealership, they can transfer that tax credit to the dealership. Yet, a dealership can only benefit from that tax credit if the direct-to-consumer doesn’t qualify.
The dealership can offer a direct-to-consumer sale and allow a customer to get a lower monthly payment if the buyer doesn’t order directly from a manufacturer like Tesla. However, skeptics question whether it is wise to subsidize an industry that’s been criticized for being less than honest with its consumers.
ICEs are ‘sort of’ covered
A surprising element of the bill is that a car with an internal combustion engine with a small battery is considered a clean car. Hybrids are considered cleaner than 100% ICEs because they can be charged. So the bill doesn’t go in 100% on getting consumers to buy 100% EVs.