The failure of the IRS to establish rules for electric vehicle tax credits by the end of 2022 as ordered by the Inflation Reduction Act is disappointing and raises questions about the execution of Congress' many-layered scheme.
The old EV tax credit was a bit convoluted, but the system crafted by Senate Democrats to meet the demands of Sen. Joe Manchin of West Virginia is a regulatory puzzle to say the least.
The Manchin compromise with Senate Majority Leader Chuck Schumer relieved automakers of volume-related limits on zero-emission vehicle tax credits, which General Motors and Tesla had exceeded, in exchange for no fewer than five limits based on vehicle price, buyer income, source of battery minerals, source of battery components and where the vehicles undergo final assembly.
Some rules are easy to enforce, such as the prohibition on federal support for vehicles assembled outside North America. Others are more complicated, such as documenting what percentage of critical battery minerals comes from places with suboptimal human rights records. Is the IRS equipped to evaluate the nation of origin of a product on a molecular level — let alone the ownership and power behind it?
It's a tough task. In some ways, it isn't surprising that the Treasury Department couldn't figure out a solution in the prescribed time frame and delayed its guidance until at least March. But that failure also raises questions, such as whether it can ever possibly come up with a solution.
And then there's Congress' order for the tax break to be issued at the point of sale. It's a righteous goal to help make EVs affordable — and one advocated by the National Automobile Dealers Association — but not one that is easy to achieve. Lucky for the IRS, it has another year to deploy a system that will let buyers receive a rebate at checkout.
The point here isn't to beat up on the IRS, though we can't help but be disappointed that the questions we've been asking for months now still lack answers.
Under the conditions set by Manchin, Congress put down a lot of rules on how the U.S. will support EV production and sales. But it failed to explain how those rules should work, and now the industry is forced to forge ahead on its most profound transformation without a clear path for what the government is and isn't willing to support.
And that is no way to manage the reinvention of an industry.