Revival of Climate Legislation Upends Electric Vehicle Pricing

David Shultz

David Shultz reports on clean technology and electric vehicles, among other industries, for dot.LA. His writing has appeared in The Atlantic, Outside, Nautilus and many other publications.

Revival of Climate Legislation Upends Electric Vehicle Pricing

Like a zombie from the grave, the husk of President Biden’s Build Back Better legislation is on the table again thanks to an abrupt about face from Senator Joe Manchin (D-WV).

The bill, which is now being called the Inflation Reduction Act, has yet to be codified into law and still has to clear several political hurdles, but getting Manchin was by far the biggest.

If the act passes, it would include numerous changes to the electric vehicle buying rebate system, which will impact which EVs and which buyers are eligible for the cashback. There’s a lot to unpack here (the full draft of the bill can be read here[PDF]), but here are the biggest takeaways:

1.The total amount available for rebate remains $7,500, but now it comes in the form of cash back at the time of purchase instead of a tax return.

2.Rebates will only be available to people below a certain income threshold. The rebates will not be available to individuals who make more than $150,000/yr or to households making more than $300,000/yr.

3.The rebates only apply to vehicles below a certain price threshold. Cars priced above $55,000 will not qualify. Neither will trucks, vans, and SUVs over $80,000.

4.The rebate will only apply to vehicles that are primarily assembled in North America. Primarily is the key word here, and things quickly get complicated. Different percentage thresholds will apply for different mineral and battery components. To start, at least 40% of the minerals used in the vehicle and 50% of the battery components must come from North America, but these percentages increase every year. If the vehicle passes either the battery threshold test or the mineral threshold test, but not both, buyers may still be eligible for half of the total rebate ($3,750).

5.Manufacturer caps eliminated. Under the previous system manufacturers could only offer rebates on their first 200,000 EV sales. Only Tesla, Toyota, and GM have reached the cap so far, but Ford and Nissan are also getting close.

6.The act introduces a used vehicle credit, which offers buyers a tax credit equal to 30% of the purchase cost of a used EV up to $4,000, and only applies to used vehicles that are sold for less than $25,000 and more than two years old. (There are a handful of limitations here. Outlined on pages 388-391.)

7.The new credit system would not take effect until January 1, 2023. If you buy an EV before the bill is signed, you’re eligible for the current rebate system even if the vehicle isn’t delivered until 2023. Any existing contracts under the current system will remain valid.

Yes, but what does it all mean?

“I think they’re mostly steps in the right direction, at least with the EV subsidies part,” said John Helveston, a researcher at George Washington University, who studies electric vehicle pricing incentives.

Overall, the proposed legislation takes quite a few strides toward making EVs more affordable and easier to sell. The introduction of the used vehicle credit, especially, may expand the EV market to a much wider swath of the middle class.

“The used [car] market is more than twice as big,” says Helveston. “If there’s 17 million new cars, there's like 40 million used cars sold every year. And the only way you're going to get EVs in the hands of people who aren't super rich is through that used market.”

Restricting the used vehicle credit to sales under $25,000 is a strange choice. It makes sense that legislators don’t want this being used as a loophole for luxury car sales, but a 2-year-old Tesla Model 3 would easily sell above $25,000. A limit of $40,000 or $50,000, might have a broader impact as used EVs will soon hover around that price point

Removing the 200,000 manufacturer cap is also huge, as it swaps a stick for a carrot. Now the best best-selling EVs are again eligible for the rebates, instead of being punished for their success.

It's also easy to see that there are a bunch of provisions aimed at making sure the money goes to people who actually need it. Capping the price of eligible vehicles and setting buyer income limits means that rebates won’t go to ultra-luxury cars being purchased by people who hardly need the help. Transitioning the rebate from a tax return to cashback at the time of purchase may also be a boon to the middle class, as I’ve written about previously here. “If you're cutting out the high-end buyer, based on income or the high price of the car, that's fine,” Helveston told dot.LA. “Those people will probably buy it anyway for other reasons, because they like it.”

The last big theme in the reworked legislation plan is the emphasis on North American assembly. Setting thresholds that increase over time prioritizes manufacturers who have plants on this continent, while acting as a deterrent for foreign model purchases.

This is probably the biggest variable in terms of creating winners and losers on the manufacturing side, and it’s hard to say at this point if this will accelerate North American EV development, or dissuading all but the very wealthy from importing foreign cars. Either way it’s clearly aimed at protecting and growing American business. Notably, almost every major foreign manufacturer already has plants somewhere in North America, so this may be as protectionist as it initially appears.

Who are the winners?

Tesla, GM, and Chevy.

Lifting the manufacturer cap means that Tesla and GM are big winners here. Not all of their cars will qualify, but many will.

The base model Ford F-150 Lightning should also qualify. Chevy is a winner because the 2023 Bolt starts at $27,200 MSRP, meaning the car drops below the 20k threshold after rebate. That’s pretty good. The upcoming Chevy Blazer, Equinox, and Silverado will also all meet the manufacturing requirements, at least.

Who are the losers?

Volkswagen, Polestar, Kia, and Hyundai. Cars from these manufacturers won’t qualify unless/until they move assembly to North America. Volkswagen and Hyundai are planning to open US assembly plants, but they may not come online for months or even years, which would put the companies at a disadvantage in the short term. Kia and Hyundai do have U.S. manufacturing plants, but they’re not currently configured to produce EVs.

What’s up with the SoCal companies?

Rivian should be largely unaffected. Both the base model R1S and R1T sneak in below the $80k cap, and both models are assembled in North America. Higher spec versions of the vehicles will exceed the threshold, though. The company was also nowhere near the 200,000 vehicle cap.

Mullen Automotive has yet to make a car, but its first offering, the DragonFly, will exceed the price caps substantially. For the future though, the company says it’s pleased with the language of the legislation. “[O]ur Mullen FIVE EV Crossover will most definitely qualify. This will be 100% built in the U.S. at our Tunica MS plant or another US plant that might be coming up for us,” says Jason Putnam, VP of Marketing at Mullen. “[O]ur EV Cargo VAN might also qualify. We are also in a good spot right now on the battery requirements for US material percentage.”

Faraday Future also does not yet have a car available for purchase, but its first proposed models, the FF91, will likely cost well north of $100,000, meaning the rebates won’t apply despite the company building their vehicles in Hanford, CA. It’s also unclear where their batteries are being sourced from and what their mineral supply chain looks like.

What to watch

First and foremost, the legislation hasn’t passed yet, so keep checking in here for the latest details. It will also be interesting to see if manufacturers raise their prices significantly if the bill passes. And what recourse–if any–will consumers have against such a hike? Will the price caps put pressure on manufacturers to hit the $54,999 and $79,999 mark?

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