Car buyers in the market for an electric or hybrid vehicle are clinging to hope that proposed tax incentives survive the remaking of a chopped up Build Back Better bill, including a signal from President Biden he’ll split off much of the proposed $ 500 billion earmarked for energy, EVs and other environmental spending.
As proposed, the Biden administration calls for expanding EV tax credits on some models to up to $ 12,500 if certain criteria are met, and allowing more people to qualify for those credits.
The $ 3.5 trillion “BBB” has essentially stalled in the Senate after House passage. “It’s clear to me that we’re going to have to probably break it up,” Biden said Wednesday at a news conference marking his first year in office.
Read: Here’s what could make the cut for Biden’s smaller Build Back Better Act
Analysts warn consumers and investors that their preferred nuggets may still not make any final legislation: “We do think that investors can count on the $ 200 billion in core clean energy tax credits that Triple-B contains,” said James Lucier at Capital Alpha Partners. “However, what comes in over and above that will fall short of the full $ 500 billion [originally called for], which is an inflated, catch-all, talking-point number for everything the bill might contain that is climate or clean energy-related, but by no means a true reckoning of the most essential provisions.”
Already, a handful of EV-supportive programs were cleared in the $ 1 trillion Infrastructure Investment and Jobs Act last year. That effort aims to add more charging stations to a road system that needs many more hookups if the nation is to convert to a greater share of green vehicles and hit net-zero emissions by 2050. Both political parties have said greatly expanding the network and speeding up charge times will be key to more EV buying, and that will require private and public investment.
Read: Billions of dollars in infrastructure bill for charging could supercharge electric vehicle adoption
For individuals mulling their first EV or trading up in this growing market, there’s much to consider as Congress and Biden continue their negotiations.
How much savings is on the line?
The proposal calls for expanding tax credits per electric vehicle or gas/electric hybrid of up to $ 12,500, if certain boxes are ticked.
Historically, government-sponsored incentives have swayed more would-be buyers, auto analysts have said, given that EVs have higher sticker prices than vehicles that run on an internal combustion engine.
“EVs tend to cost more than their gas equivalents because of expensive batteries up front, but they tend to make that up in lower fuel costs over time,” said Steven Nadel, executive director at the American Council for an Energy Efficient Economy.
The base amount of the newly proposed tax credit for qualified filers remains $ 4,000, as it is today, with another $ 3,500 available if the EV’s battery pack includes at least 40 kilowatt-hours of capacity. In the case of plug-in hybrids, the gas tank cannot exceed 2.5 gallons.
The proposal also calls for resetting the clock for makers Tesla TSLA, -1.84% and GM’s Chevrolet GM, -0.23%, which had tapped out the incentives allowed under earlier legislation, Nadel said. Current law for the credits phases them out after a particular automaker sells over 200,000 qualifying vehicles.
Biden and leading Democrats have made renewable energy and other environmental jobs a key talking point of their initiatives, but that brings challenges when some current auto parts manufacturing and assembly are imported or take place at non-union U.S. plants.
Non-U.S. production for some or all of the parts that go into EVs will rule out some of the major makers extending the full credit to their customers, considering they can’t quickly return production to the U.S.
“‘Tax incentives should be fair and equal for all EVs.’”
As proposed, EVs qualify for another $ 4,500 in the tax credit if an automaker makes the vehicle in the U.S. with a union workforce. A final bonus credit of $ 500 is awarded on vehicles powered by battery cells manufactured in the U.S. for a maximum of $ 12,500 available to qualifying filers.
Today, the only vehicles that would qualify for anywhere near the full proposed credit is GM’s Chevrolet Bolt EV and Bolt EUV, auto site Road Show said.
Clearly, how makers source their parts and labor varies. The Tesla 3, earlier this year, was voted most “American-made” by Cars.com, using a list of qualifications. New-to-market Rivian RIVN, +1.91% is based in Irvine, Calif., with its manufacturing plant in Normal, Ill. But the Ford Mustang Mach-E EV, for instance, is assembled in Mexico. And, the Nissan Leaf is assembled in Tennessee, but in a non-union shop.
Read: The 2021 most ‘American-made’ auto is a first-timer in the top spot
Where’s the vehicle made?
Critics of pending bill language have said restrictions on imports and assembly limit the EVs that consumers can buy and still enjoy the break, and their reluctance reflects in part the tensions that have snarled bill passage.
“It discriminates against American workers, undermines global climate change goals and threatens our relationships with our trading partners. Tax incentives should be fair and equal for all EVs,” said Jennifer Safavian, president and CEO of free-trade group Autos Drive America.
“The proposal to provide a $ 4,500 incentive exclusively for union-built electric vehicles runs counter to the goal of carbon reduction,” Toyota Motor TM, -0.36% said in a release. “This suggests that having more electric vehicles on the road is secondary to promoting unionization. We urge Congress to treat all of the nation’s autoworkers fairly and equitably — to let consumers choose the best electric vehicle for them, without being penalized because of their choice.”
Consumers should also remember that tax legislation can change. As proposed, beginning in 2027 only vehicles assembled in the U.S. would be eligible for incentives.
Price and income considerations
In other changes made in later iterations of the proposed bill, Democrats increased the price cap for qualifying EVs. The new language allows for vans, trucks and SUVs with a manufacturer’s suggested retail price of up to $ 80,000 to qualify for the $ 12,500 credit. Previously, the initial framework set a limit of $ 64,000 for vans, $ 69,000 for SUVs and $ 74,000 for pickup trucks.
Lawmakers also reduced income eligibility to claim the full credit. Single filers with adjusted gross annual incomes of $ 250,000 or more, or joint filers with AGIs of $ 500,000, will not be eligible for the full credit. That’s down from $ 400,000 for single filers and $ 800,000 for joint filers under existing law.
Making tax credits ‘refundable’
Currently, the EV tax credit is a nonrefundable credit when you file your taxes, meaning it simply lowers your federal tax bill — you have to make a certain amount for it to really have an impact.
However, the latest version of the Build Back Better bill turns the EV tax credit into a refundable amount. With this change, it wouldn’t matter if an EV buyer owes the IRS or not — anyone who buys an EV will be potentially eligible for at least $ 4,000 in their pocket.
The change would move the tax credit much closer to a point-of-sale incentive, if qualifying makers choose to transfer credits to knock down the sticker price.
What about used and leased EVs?
Right now, and in the pending bill, there is no tax credit if you decide to lease a new electric vehicle. Instead, the tax credit actually goes back to the automaker or lender financing the leased vehicle.
Like leasing an EV, buying a used electric auto also does not allow you to claim the traditional EV tax credit. But that could change. Language calls for a $ 2,000 credit for used EVs at least two years old that cost under $ 25,000. There’s an extra $ 2,000 available if the EV includes at least a 40 kilowatt-hour battery for a total of $ 4,000 available through 2031 for qualifying previously owned EVs.
State help and other programs
Many states and even local governments are looking to speed up EV adoption rates and so offer their own incentives on top of any federal help. California is a leader in incentivizing EV purchases with a direct consumer rebate up to $ 4,500 through the Clean Vehicle Rebate Project. There is a waitlist.
Colorado, Washington and select New England states also offer state incentives and more may be looking to leverage federal efforts.
Even your local utility company may subsidize an EV purchase, so it may be worth an inquiry.
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