Manchin's new bill latest snag in EV tax credit rollout

WASHINGTON — While Sen. Joe Manchin's proposed revision to a section of the new electric vehicle tax credit faces uncertain prospects in a divided Congress, the action underscores yet another snag in the federal government's rollout of the tougher-to-meet consumer incentives.

The West Virginia Democrat on Wednesday introduced legislation — called the American Vehicle Security Act — that would amend the Inflation Reduction Act's consumer tax credit for new EVs so that the effective date of the required battery sourcing is no longer tied to Treasury's release of proposed guidance on the restrictions.

If enacted, no credit would be available for any new EV that does not meet the increasingly stringent critical mineral and battery component requirements, effective retroactively as of Jan. 1. The Inflation Reduction Act's commercial clean vehicle credit, known as 45W, and used EV credit, known as 25E, are not subject to the sourcing rules and are unaffected by Manchin's bill.

"We've always been an automotive powerhouse, and the sooner that we're able to source our own supplies that we need for our mode of transportation, we'll maintain that powerhouse," Manchin said on the Senate floor a day after introducing the bill, which is now co-sponsored by Indiana Sen. Mike Braun, who last year joined fellow congressional Republicans in voting against the wide-ranging Inflation Reduction Act. "That's what the [Inflation Reduction Act] has done. That's the intent."

Manchin, who chairs the Energy and Natural Resources Committee, urged Senate lawmakers to pass the bill through unanimous consent. The effort failed Thursday after an objection from Sen. Debbie Stabenow, a Michigan Democrat who previously championed a controversial proposal that would have given consumers a $4,500 bonus for purchasing union-made EVs.

"What was put in place on this piece was complicated," Stabenow said of the EV battery sourcing rules. "It doesn't work for several years for American companies. It doesn't stop China. It doesn't stop anybody else from coming into our market ... but it stops our companies from fully benefiting."

Treasury was required to issue proposed guidance on the sourcing rules by Dec. 31 but missed the statutory deadline. Instead, the department is planning to issue the guidance in March.

After it is issued, the $7,500 tax credit for new EVs, known as 30D, will be parceled out in two halves for qualifying vehicles and buyers. Half is based on meeting escalating requirements for battery components to come from North America. The other half is based on critical minerals coming from the U.S. or free-trade partners.

"Bottom line, it is not unreasonable," Stabenow said of Treasury's delay. "They have been given, I believe, an incredibly complicated task to try to figure out how this consumer credit will work."

Treasury's delay has potentially opened up more vehicles to qualify for the full credit in the interim. Manchin, however, said allowing vehicles to get the credit without meeting the sourcing rules goes against the law's congressional intent.

Treasury had no comment in response to Manchin's bill.

Abigail Wulf, vice president of critical minerals strategy at SAFE, previously known as Securing America's Future Energy, was quick to remind policy spectators that the stringent sourcing requirements are what got Manchin to reconsider his prior opposition to EV tax credits in the first place and said his latest move is "not surprising."

"Ensuring critical mineral supply chains for EVs are not overly concentrated or reliant upon strategic competitors that do not share our interests or values is essential for U.S. national security and economic competitiveness," she said. "This highlights the importance of Treasury moving swiftly to issue clear guidance on the rules to meet the dual purpose of securing supply chains while not lagging behind other countries."

Nearly 40 new models are potentially eligible for the full tax credit between Jan. 1 and until Treasury issues the required EV battery sourcing guidance, according to an IRS list. However, under Manchin's bill, eligibility would be significantly limited during that time frame, with very few to no vehicles likely qualifying for the critical minerals portion of the credit.

The Alliance for Automotive Innovation, a trade group that represents the U.S. auto industry, also has said no vehicles would be eligible for the full credit once the EV battery sourcing rules take effect.

"What we should be doing right now is reducing consumer confusion about availability of the tax credits, not adding to it," John Bozzella, CEO of the alliance, said Thursday during a LinkedIn Live chat with Automotive News.

Patrick Anderson, CEO of Anderson Economic Group, said his consulting firm anticipated the tax credit would have a negative effect on EV sales and adjusted its assessment of the number of EVs that would be sold in 2023 and 2024, citing the tougher eligibility restrictions and complex rules.

"This tawdry drama about whether the federal government has to be forced to follow its own law is going to add to that," he said. "I would again warn both buyers and auto dealers against making any confident assertions about whether customers can get ... tax credits for EVs."

Meanwhile, several policy experts said it's unlikely — though not entirely inconceivable — that Congress would act on Manchin's bill before Treasury issues the guidance.

"It seems like it may not go anywhere, but, then again, over the past year we've had a lot of surprises, especially when Joe Manchin has been involved in climate policy," said Ilaria Mazzocco, a senior fellow at the Center for Strategic and International Studies.

Nick Nigro, founder of EV research group Atlas Public Policy, said he expects there to be "very little appetite" in this Congress for taking up legislation on EV incentives.

While Manchin's goal of insourcing essential supplies for EVs is laudable, he added, the senator's legislation could introduce "more uncertainty in an already uncertain period" and potentially hurt EV adoption in the near term.

"There is going to be a transition period where some vehicles will be eligible and then they won't be, or vice versa," Nigro said. "That's going to be complicated for consumers to understand, so the quicker we can get to a period where consumers can just go to a website and see all the vehicles that qualify and how much they qualify for, the better position it will be for the market."