The tax credit for electric vehicles in the Inflation Reduction Act is very limited: “most vehicles are immediately ineligible”

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Is the Cut Inflation Act a landslide victory for electric cars? Not so fast – some experts aren’t convinced the legislation will do much for current EV brands and potential owners. Not to mention the high costs that make them inaccessible for many families.

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Over the weekend, the Inflation Reduction Act was passed in the Senate; he now heads to the House for a final vote. Among the bill’s provisions are additional Medicare benefits and lower premiums for the Affordable Care Act, as well as sweeping tax reform. It also includes some of the biggest green measures in US history, such as encouraging the purchase and use of electric vehicles to reduce emissions and boost clean energy.

Under the new law, new owners of electric vehicles will receive the $7,500 tax credit that already exists for current drivers; however, it will now be available for purchase rather than waiting for tax filing time. If the legislation is passed, the program would begin on January 1, 2023 and run until 2032.

Eligible automobiles include cars with a Manufacturer’s Suggested Retail Price (MSRP) of less than $55,000 and up to $80,000 for SUVs and trucks. Head of household/single filers have an income cap of $150,000, while couples are capped at $300,000, further pushing the middle class to buy electric vehicles. The other big part is that the new law removes the previous requirement that the only eligible electric vehicles had to come from manufacturers who have not yet reached sales of 200,000 models. This means that Tesla and GM are once again in the game.

While that might sound like a boon for green car sales, there are a few pitfalls that have insiders wondering if current electric cars on the market will even qualify.

A big problem is that the eligibility of electric vehicles in this new bill depends on the use of key components made in North America. It states that 50% of the battery parts and 40% of the minerals must come from US shores or a country we have free trade agreements with, and that must be done by December 2023 and December 2024, respectively. These numbers will increase by 10% each year of the program.

The problem: Currently, 90% of the minerals used in electric vehicles are processed in China, according to Katherine Stainken, vice president of policy for the Electrification Coalition, per Spectrum News.

While many automakers are spending billions to run processing plants – including Ford, Hyundai and Tesla – in the short term, this can hurt electric vehicle sales and is counterproductive for many manufacturers who have goals. for fully electric car production lines in the future. General Motors, for example, said in 2021 that it wanted to phase out gas-powered vehicles by 2035.

“Unfortunately, the electric vehicle tax credit requirements will make most vehicles immediately ineligible for the incentive. This is a missed opportunity at a crucial time and a change that will surprise and disappoint customers in the electric market “a new vehicle. It will also jeopardize our collective goal of 40-50% electric vehicle sales by 2030,” said John Bozzella, president and CEO of the Alliance for Automotive Innovation, in a statement. blog post on the agency’s website.

This setback has even prompted some consumers to rethink their orders until the manufacturing conundrum is resolved. On the Ars Technica site, one person commented: “I think the reality is that at this point I will cancel my order. The price of my car had already gone up by over $5,000 before the vehicle was officially released, and with the tax credit, I was like, “Okay, that’s not great, but I’ll survive. Dealing with paying a total of nearly $13,000 more than when I specified the car in the final months of last year, however, is just a bridge too far.

The other problem, of course, is that the list prices for electric vehicles far exceed regular gas-powered cars and aren’t quite affordable for many people within the new income caps. According to Kelly Blue Book, new electric vehicles can have an MSRP up to $20,000 more than traditional cars.

As The New York Times noted, since electric vehicles have been in high demand among wealthy buyers, manufacturers have had little incentive to make lower-priced models. In fact, Tesla has raised the price of its Model 3 – aimed at “ordinary people” – by $12,000 due to demand. And because of the hype, there are very few used options available that could have lowered the cost as well.

Add to that the fact that low-income buyers don’t always have a driveway or garage to charge their vehicle, and public charging stations are rare and not always convenient.

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While ideally these issues will be resolved over time, it won’t happen overnight, and not as quickly as the Inflation Reduction Act is expected to pass.

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About the Author

Selena Fragassi joined in 2022, adding to her 15 years of journalism with signings to Spin, Paste, Nylon, Popmatters, The AV Club, Loudwire, Chicago Sun-Times, Chicago Tribune, Chicago Magazine and others. She currently resides in Chicago with her pets and is working on a first historical fiction novel about World War II. She holds a degree in fiction writing from Columbia College in Chicago.