Union-built EV tax credit provision faces hurdle

WASHINGTON — A proposal by House Democrats that would give consumers an extra incentive to buy union-made electric vehicles has stoked tension and debate among lawmakers, automakers and other stakeholders.

Despite outspoken criticism from Toyota Motor North America, American Honda Motor Co., Tesla and advocates of nonunionized businesses, the House Ways and Means Committee last week advanced the tax credits for inclusion in the Democrats' $3.5 trillion budget reconciliation bill.

The proposal — led by Rep. Dan Kildee, D-Mich. — would boost 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. After five years, only EVs assembled in the U.S. would be eligible for the $7,500 base credit.

As drafted, the House proposal could face a roadblock in the Senate: Joe Manchin, a moderate Democrat from coal-producing West Virginia, where Toyota is the only automaker with a factory.

Manchin's office did not respond to multiple requests last week for an interview.

"There are a lot of powerful members of Congress who have nonunion automotive production in their state or district — Joe Manchin being one," said Kristin Dziczek, senior vice president of research at the Center for Automotive Research in Ann Arbor, Mich. "It's going to be difficult for them to support the language, as it's currently written, for those people who represent districts or states that have international production, nonunion production."

Toyota's factory in Buffalo, W. Va. — a $1.59 billion investment — produces engines and transmissions and employs 1,700 nonunion workers, according to the Japan Automobile Manufacturers Association.

"In a state like West Virginia, with a really, really uneven economic record for many decades, a senator is going to be aware of that and want to protect those jobs as much as possible," said Barry Rabe, a professor of public policy at the University of Michigan's Ford School. "That would also be true in other states, but especially in a case like West Virginia."

For Manchin — one of the Democratic Party's key swing votes, who has argued against the $3.5 trillion reconciliation price tag — concerns might include transition costs for people in the fossil fuel industry, such as coal miners, as the U.S. moves toward greater electrification and a greener grid.

"What does it do for the constituents in West Virginia?" Dziczek said. "Coal production and Toyota engines and transmissions are going to be key on his mind."

Sen. Shelley Moore Capito, Manchin's West Virginia Republican counterpart, said the Democrats' EV tax credits are "incredibly unfair" and would "disadvantage companies making investments in the United States."

The tax-and-spending bill — opposed by Republicans — can pass in the Senate with a simple majority vote, or 50 senators plus the vice president.

While Manchin might stymie movement on the bill, other lawmakers could put down speed bumps on the EV tax credit proposal, especially the union-built provision.

Rep. Terri Sewell, an Alabama Democrat, said she is working with Kildee to "level the playing field" for EV tax credits.

"This shouldn't be a choice between unionized vs. un-unionized workers," Sewell said last week during the committee's markup.

Alabama employs 1,400 nonunion workers at Toyota's engine plant in Huntsville — a $1.17 billion investment, according to the Japan Automobile Manufacturers Association. In total, Sewell's state employs more than 13,000 nonunion auto workers across Mercedes-Benz, Hyundai, Honda and Toyota factories, she said.

Republicans on the House Ways and Means Committee argue the EV tax credit proposal subsidizes the wealthy to buy vehicles that most Americans can't afford.

"It is hard to imagine how giving a tax break of $12,500 to someone buying a $74,000 electric vehicle — nearly the median home price in some counties in my district — is a way to help working class workers," Rep. Carol Miller, R-W. Va., said in a statement to Automotive News.

Rep. Drew Ferguson, a Georgia Republican who introduced a failed amendment to lower the maximum income threshold for the EV tax credits, also argued that "pitting Americans in one state versus another through a direct subsidy is wrong."

Automakers in Ferguson's state include Kia and Honda.

Kildee told reporters last week there is a "possibility" of broadening the proposed EV tax credits when the full House takes up the legislation.

"If we can find language that helps us identify another way to reward companies that are 'very high labor standard' companies, we're open to that," he said.

Both Kildee and Sen. Debbie Stabenow — a Michigan Democrat who led an earlier proposal in the Senate that also would tie additional EV tax credits to vehicles assembled in unionized U.S. factories — said they're "not going to apologize" for prioritizing American union workers.

Ford Motor Co., General Motors and Stellantis — whose workers are represented by the UAW — praised Kildee's proposal last week, while others called for broader incentives.

In a statement to Automotive News, Volkswagen Group of America said "providing oversized incentives to a select few domestic manufacturers and eliminating incentives for all imports in just a few years puts us at a significant, competitive disadvantage."

Autos Drive America, a trade association that represents the U.S. operations of international automakers including VW, Toyota and Honda, said the House committee should support "equal incentives for all EVs."

The Alliance for Automotive Innovation, which represents most major automakers, said it appreciates the committee's work to expand EV tax credits by removing the per-manufacturer cap.

But to meet President Joe Biden's goal for zero-emission vehicles to make up 40 to 50 percent of all new vehicles sold in 2030, the alliance said, "We must ensure that incentives are applicable to all manufacturers, do not discriminate between companies and are widely available — thereby preserving choice for consumers as more EVs come to the market across all models and price points."

The National Automobile Dealers Association said it "supports tax credits to incentivize the purchase of EVs, but cannot support the bill in its current form." NADA said it will continue to work with lawmakers to broaden the credits for every nameplate sold by its franchised dealer members.

EVs are only a sliver of new-vehicle sales in the U.S., and meeting Biden's ZEV goal is "going to be difficult to get there on just union-built vehicles," said Dziczek.

She added: "It's going to be difficult [for the proposal] to survive the process in the form that is currently written for many political reasons."