Automakers concerned over consumer access to EV tax credit in Senate proposal

WASHINGTON — Automakers represented by the Alliance for Automotive Innovation expressed concern Wednesday that a "significant number" of electric vehicle buyers would be unable to use the tax credit as proposed in the Democrats' revised spending bill.

"We support — 100 percent — Sen. [Joe] Manchin's goal to reduce dependence on foreign nations for minerals and [are] committed to growing America's EV supply chain and adding jobs and capacity here," John Bozzella, CEO of the alliance, said in a statement Wednesday.

"But a likely result of this bill — as currently constructed — is that a significant number of consumers will not be able to take advantage of this credit in the early years when it is needed the most," he added.

Many of the alliance's members, which include the Detroit 3, Toyota and Volkswagen, are forming partnerships with battery suppliers and other EV-related companies in North America as they seek to gain a foothold in a more localized battery supply chain and reduce U.S. reliance on countries such as China.

"That's a process that is well underway," Bozzella said, "but it's also a change that doesn't happen overnight."

The EV tax credit proposal unveiled last week by U.S. Democratic Sens. Chuck Schumer and Manchin as part of the Inflation Reduction Act lifts the cap on the current $7,500 tax credit but adds increasingly stringent critical mineral and battery sourcing requirements for automakers as well as limits on vehicle sticker prices and the buyer's income.

Automakers have privately pushed back on the sourcing requirements, according to a Reuters report.

Sen. Debbie Stabenow told Reuters on Tuesday that "it's a very cumbersome, unworkable credit once the full restrictions set in" and that conversations are ongoing.

The Michigan Democrat previously championed a now-failed proposal that would have boosted consumer tax credits to as much as $12,500 for EVs assembled in a factory represented by a labor union with U.S.-produced batteries.

Stabenow did not immediately respond to a request from Automotive News for comment.

But Manchin — a key swing vote in the evenly split Senate — pushed back on concerns that the credit is too aggressive or unusable, telling automakers on Tuesday to "get aggressive" and "make sure that we're extracting in North America, that we're processing in North America, and we quit relying on China."

"I was very, very adamant that I don't believe that we should be building a transportation mode on the backs of foreign supply chains, and I'm not going to do it. We've never done that in America," Manchin told reporters. "We build our own cars. We build our own combustible engines. We've done everything. Now all of a sudden, now we can't? No."

In April, the West Virginia senator questioned the need for an EV tax credit, given strong consumer demand and an ongoing reliance on China for battery components.

The new proposal on EV tax credits calls for 50 percent of the critical minerals used in EV batteries to be extracted or processed in the U.S. or in a country where the U.S. has a free trade agreement in effect, or from materials that were recycled in North America. In 2024 and 2025, 60 percent of the battery components must be made or assembled in North America.

Those requirements would increase to 80 percent after 2026 for critical minerals, and by 2029 would require 100 percent of the battery components to be made or assembled in North America. Final assembly of the vehicle also must occur within North America — a provision that would apply immediately after the bill is enacted.

Any vehicles with battery components that were made or assembled by China or other entities the federal government deems concerning would be ineligible for the credit starting in 2024. Vehicles with critical minerals that were extracted, processed or recycled by those entities would be excluded starting in 2025.

The credit, too, sets limits on the suggested retail price to no more than $80,000 for new pickups, SUVs and vans, and to no more than $55,000 for other vehicles such as sedans. Eligible buyers would be taxpayers with adjusted gross incomes of no more than $300,000 for joint filers, $225,000 for a head of household and $150,000 for single filers.

The proposal also creates a $4,000 tax credit for consumers buying certain used EVs and a credit for certain commercial vehicles.

The tax credits would be applied at the point of sale and expire after Dec. 31, 2032.

EV startup Rivian, in a statement Sunday, said while it applauds the focus of the pending reconciliation bill, "as currently drafted this legislation will pull the rug out from consumers considering purchase of an American-made electric vehicle."

James Chen, Rivian's vice president of public policy, told Automotive News sibling publication Crain's Chicago Business that it would favor automakers such as Tesla and General Motors, which have had longer to ramp up production or do some manufacturing overseas.

GM last week said it is "encouraged by the framework laid forth in the legislative text."

"While some of the provisions are challenging and cannot be achieved overnight, we are confident that the significant investments we are making in manufacturing, infrastructure and supply chain … can establish the U.S. as a global leader in electrification today and into the future," said the Detroit automaker, which has committed $15.7 billion in EV manufacturing and created nearly 9,000 jobs in the U.S.

Daniel Ryan, Mazda North American Operations' vice president of government and public affairs, said the Japanese automaker was concerned that the battery and critical minerals provisions could make it "very difficult" for automakers to reach EV sales targets set by the federal government.

Mazda currently offers only one fully electric vehicle, the MX-30 — a 100-mile-range crossover being rolled out in limited volume to customers in California.

The tax credit's sourcing requirements, if approved, will require a "really fast development of supply chains" for countries with free trade agreements with the U.S. as well as for battery assembly in North America, said Stephanie Searle, director of the fuels program and the U.S. region at the International Council on Clean Transportation.

"I don't want to say too much about exactly how challenging that's going to be," Searle said Tuesday during a panel discussion moderated by the Alliance for Automotive Innovation's Bozzella at the annual CAR Management Briefing Seminars in Traverse City, Mich. "It speaks to an important need to diversify our supply chains globally, to make sure that they're robust and also to really support domestic manufacturing."

When asked about concerns that the credit may not be available for some time to a lot of consumers while those supply chains are developed, she said: "It really depends on exactly how challenging it is to ramp up those supply chains in the time frame required. I think we're going to wait and see, but that's an area where we are really going to have to move fast."