US President Joe Biden on Tuesday signed into law the Inflation Reduction Act, the cornerstone of his legislative agenda and a major step forward in America's fight against climate change.
Within the bill is a major electric vehicle (EV) tax credit, but while it could take the edge off the cars' high prices, it may actually make buyers hesitate before going green.
What are EV tax credits?
EV tax credits have been around since 2010 but have generally benefited wealthier buyers.
Under the new bill, EV buyers could receive up to $7,500 in tax credits if their purchased vehicle meets a set of criteria.
The tax credit will not be available for people who make more than $150,000 per year and will not apply to luxury cars over $80,000.
Under the current system, most EVs are eligible for the tax credit, but these only apply to the first 200,000 vehicles a company sells per year.
The new bill removes this cap in an attempt to make it easier for the average American to purchase an EV.
Which cars are eligible for EV tax credits?
The currently eligible vehicles are 2022 model year EV or plug-in hybrid electric versions of the Audi Q5, BMW X5, Ford Mach-E, Ford F-150, Ford Escape, Chrysler Pacifica, Jeep Grand Cherokee, BMW 3-Series, Lincoln Aviator, Lincoln Corsair, Lucid Air, Nissan Leaf, Volvo S60 and Rivian EDV, R1S and R1T. The 2023 Leaf, 3-Series plug-in and Mercedes EQS are also eligible.
“[The bill is] trying to steer the tax credit towards the mass market where average people are buying cars,” John Helveston, an assistant professor at the School of Engineering and Applied Science at George Washington University, told The National.
Despite the moves to make it less expensive to buy EVs, the bill stipulates that only cars made in North America will be eligible for the tax credit.
The Alliance for Automotive Innovation said this will significantly reduce the number of vehicles eligible for the credit.
“Unfortunately, the EV tax credit requirements will make most vehicles immediately ineligible for the incentive,” said John Bozzella, the organisation's president and chief executive.
The organisation estimates that 70 per cent of the 72 electric and plug-in hybrid vehicles available in the US will be ineligible.
A host of manufacturers, including Audi, Porsche, Kia and Volkswagen have said their cars will not meet the new criteria for the tax incentives.
The provision has angered several European Union members and other car-manufacturing nations.
The made-in-North America clause was a stipulation of Joe Manchin, an influential West Virginia senator who had been one of two Democratic holdouts preventing the bill from passing the Senate for months.
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Mr Manchin, who comes from a coal-producing state, has been a vocal critic of the push for EVs in part, he has said, because of the reliance it creates on other countries, including China — the world's leading producer of electric car batteries.
Companies will have to source at least 40 per cent of the materials for their batteries in North America, with the idea being it will help support US mines and mineral-processing sites and prevent increased dependence on China.
Experts such as Mr Helveston say they would have preferred to see the North American demand phased in over time.
“Right away, it's going to be very difficult for automakers to meet those requirements,” he said.
Good news you can use
Used EVs are not be required to meet country origin rules -- they just need to be older than two years, cost less than $25,000 and purchased from a dealer and not a private owner.
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