US EV tax credit survives in new bill and gets bigger

One of the last hurdles facing the reinstatement of the famous federal EV tax credits in the US has been removed as Senator Joe Manchin has changed his position. The Democratic politician had been opposed to the bill but surprisingly announced a package named “Inflation Reduction Act of 2022.” It allocates $369 billion towards cutting carbon emissions by 40 percent by 2030.

There is a change in wording as “clean vehicles” replaces “new qualified plug-in electric drive motor vehicle.” The new bill will leave the $7,500 federal tax credit in place but eliminate the 200,000 unit cap that triggers the beginning of the end of the incentive for a company. This is welcome news for companies like Tesla, Toyota, GM, etc., each of which has sold more than 200,000 EVs in the US.

Also, there is a provision for a $4,000 tax credit on used electric cars, which should encourage low-income earners to switch, as they may find it challenging to buy EVs due to their expensive costs.

Other winners in the new bill are Canada and Mexico. Previous versions of the bill would have prioritized made-in-American EVs, but all North-American-made EVs now qualify. Canada threatened to retaliate if the American-made policy stood.

The new bill includes caps on qualifying EVs, including $55,000 on new cars and $80,000 on pickup trucks, SUVs, and vans. Single buyers will qualify if they earn less than $150,000 and $300,000 for joint tax filers.

EVs using minerals that “were extracted, processed, or recycled by a foreign entity of concern” do not qualify. “Entity of concern” means a state or country sponsoring terrorism.

The condition that Union workers must build EVs to qualify was dropped. However, EV companies will be able to benefit from a $10 billion investment tax credit for constructing EV factories and a smaller $2 billion funding for retooling existing factories for EV production.

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