The senatorial compromise between Joe Manchin of West Virginia and Majority Leader Chuck Schumer known as the Inflation Reduction Act resulted in a complicated and annually changing program that nominally expands the federal electric vehicle tax credit, though in reality it reduces taxpayer support for EVs in the short term.
In later years, it may encourage Americans to buy more EVs — maybe a lot more. And it could be glorious: with millions of clean-running cars and crossovers made in North America with key inputs from economic allies for middle-class consumers.
Alternatively, the cost of earning the federal subsidies could be too high to justify even a whopping $7,500 incentive. If that's the case, the government might largely get out of the incentive business, leaving the EV market to its own devices. I would suspect that would mean a slower pace of growth for most companies and continued rapid expansion for Tesla, which hasn't had a federal consumer subsidy in the U.S. since mid-2019.
Tesla's Model Y may, in fact, qualify for some federal support when new rules take effect Jan. 1. Some General Motors vehicles, the Volkswagen ID4, Nissan Leaf and Mustang Mach-E may as well, though we don't really know. Battery mineral sourcing is opaque — perhaps even to the companies themselves. John Loehr of AlixPartners noted on our LinkedIn Live session last week that minerals can come from three or four tiers down the supply chain, where automakers have little visibility or verifiability.
But here's the thing: The success or failure of this policy is really in the decision-making machines at the two companies that probably got hurt the most, Toyota and Hyundai.