The CEOs of the 4 largest American car manufacturers have joined forces and asked Congress to remove the current credit ceiling for EVs. CEOs have sent a letter asking Congress to renew the tax credit system that currently gives buyers of electric vehicles $ 7,500, but ends when each carmaker reaches 200,000 vehicles sold.
CEOs are convinced that giving up tax credit restrictions will encourage mass acceptance of electric cars and trucks by consumers.
The letter was addressed to Senate Majority Leader Chuck Schumer, Senate Minority Leader Mitch McConnell, House Minority Leader Kevin McCarthy and House Speaker Nancy Pelosi. It was signed by GM CEO Mary Barra, Ford CEO Jim Farley, Stellantis CEO Carlos Tavares and Toyota North American CEO Tetsuo “Ted” Ogawa.
Last week, Ford CEO Bill Ford traveled unannounced to Capitol Hill to present arguments for extending the tax credit.
As a manufacturer of electric-only cars, Tesla, a leader in the electric vehicle industry, achieved sales of 200.00 qualified vehicles in December 2019. GM reached a maximum of 200,000 vehicles in the last quarter of 2018, driven by sales of hybrid Volt sedans and fully electric Chevy Bolt EV. Toyota said in April that it expects its loans to expire by the end of 2022. Ford has sold nearly 160,000 electric vehicles by the end of 2021 and could reach the upper limit this year. Other carmakers predict that they, too, will reach 200,000 when they launch new electrical products.
Leaving aside the tax credit cap could help boost sales as part of President Biden’s goal of switching 50% of all new cars to fully electric transport by 2030.
Conflicting perspectives on incentives for clean transport
In May 2021, the Senate Finance Committee improved legislation on 14-14 unresolved votes for the Clean Energy Act for America, which included a proposed increase in the current federal EV tax credit to $ 7,500 for the purchase of a zero-emission electric vehicle. The law sought to eliminate the existing EV limit of 200,000 vehicles per manufacturer, while the loan would be phased out within 3 years when 50% of U.S. passenger car sales are EVs.
Senator Debbie Stabenow (MI-D) has proposed a bill that would increase the $ 7,500 tax credit by $ 2,500 for vehicles made in the U.S. and another $ 2,500 for electric vehicles built at facilities whose production workers are members or represent. a union, such as the UAW. Last year, many Democrats in Congress and President Joe Biden proposed raising EV tax breaks to $ 12,500 – including a $ 4,500 incentive for union, assembled vehicles in the United States. The proposal would also abolish loans for electric vehicles manufactured outside the United States, sparking opposition from Canada and other car-producing countries.
It was claimed that a $ 12,500 tax credit for EV would help accelerate the adoption rate of electric vehicles in the U.S., which currently accounts for 3.4% of all vehicles sold. Moreover, Biden supported a 30% loan for commercial electric vehicles, a $ 4,000 tax credit for the use of EVs, and enabled the repayment of a current loan at the point of sale.
The bill stalled and had to be approved by the Senate and the House of Representatives. Given a divided Congress, postponing the law now seems unlikely.
In April, Senator Joe Manchin (D-Coal) questioned the need to extend tax breaks for electric vehicles due to high consumer demand and Chinese production of battery components. “There is currently a waiting list for EVs with a fuel price of $ 4. But they still want us to give $ 5,000 or $ 7,000 or $ 12,000 in loans to buy electric vehicles. It doesn’t make any sense to me, “Manchin said. “When we can’t produce enough products for people who want it, and we still pay them to take it – that’s absolutely ridiculous in my opinion.”
Manchin previously opposed the initiative of only the union, as well as Toyota.
A recent letter to Congress did not mention union incentives.
Next-generation tax credits for low-carbon technologies
Achieving emission reductions to achieve net zero emissions across the economy by 2050 will require sustained technological innovation and widespread deployment of new low-carbon technologies not yet commercially applied in the mass market, according to a World Resources Institute working paper. The authors say that tax credits are an important policy tool to support the early stage of implementation of new technologies, as well as more mature technologies that have not yet reached wide application.
The paper describes how decarbonizing the US economy to achieve 50-52% emission reductions by 2030 and net zero emissions by 2050 will require significant use of available and new alternatives to fossil fuel-based technologies. The authors argue that there are gaps within the current tax credit constraint structures that are currently in place due to critical design flaws.
- Federal tax credits are caught in an endless cycle of expiration and extension, sometimes retroactively. These short-term tax credits create uncertainty and discourage long-term planning by the private sector.
- Most clean energy tax credits are non-refundable, which means that they can only be used by taxpayers with a positive tax liability or through the tax share market. A repayable tax credit allows the taxpayer to obtain a full tax credit in the form of payment or other compensation no matter how much tax he owes. The direct payment option specifically refers to the option of receiving payment for the full amount of the tax credit.
- Once tax credits are established, they need to be reviewed periodically to ensure that eligibility and durability keep pace with rapidly changing technologies and markets. Without auditing, tax credits have in many cases failed to sustain innovation.
- Existing federal tax breaks do not apply to many of the low-carbon technologies that are key to decarbonising various sectors of the U.S. economy, including energy storage, transmission, zero- and medium-duty zero-emission vehicles, commercial and industrial heat pumps, transformative industrial technologies, and manufacturing hydrogen.
- In other cases, existing tax credits, such as the Section 45Q credit, are inadequate and may be further improved to apply new technologies such as direct air intake.
Framework for the elimination of the tax credit ceiling for EVs
The US federal tax credit on EV was first introduced in 2009 by the Obama administration and came into force on January 1, 2010. It was intended to help boost sales of low- and zero-emission vehicles in the U.S., including plug-in hybrids, fuel cell vehicles and all-electric models. A tax credit of up to $ 7,500 for the purchase of zero-emission vehicles could also be combined with other local incentives.
For years, major carmakers have argued that the current policy of limiting the tax credit to 200,000 sales is punishing those who adopted fully electric transport technologies early on. Executives say credit is needed to keep vehicles affordable as production and goods costs rise. Inflationary trends in the US and abroad have affected carmakers as they face rising raw material costs, especially for nickel and cobalt used in EV batteries, and these rising costs are reducing car manufacturers ’margins. The price of nickel has jumped by over 29% since last year. Prices of metals such as aluminum used for vehicle bodies jumped by over 50% compared to a year earlier.
The letter he saw Reuters, comes amid growing concerns among automotive executives that the window for the U.S. Congress to extend tax credits for EVs will close if Republicans take control of one or both houses of Congress next year. The CEOs said in a joint letter that they had pledged to invest over $ 170 billion by 2030 to boost the development, production and sales of electric vehicles, including short-term investments of more than $ 20 billion in the United States.
“We are asking for the restriction on the car manufacturer to be removed, and the set date is set for the time when the electric vehicle market is more mature,” car manufacturers explain. “Recent economic pressures and supply chain constraints are increasing the cost of producing electrified vehicles, which in turn puts pressure on consumers.
“The coming years are crucial for the growth of the electric vehicle market, and as China and the EU continue to invest heavily in electrification, our domestic policies must work to strengthen our global leadership in the automotive industry,” the CEOs continued. “Removing restrictions will encourage consumers to accept future electrified options.”
“We are asking for the restriction on the car manufacturer to be lifted, with a set date when the electric vehicle market is more mature.”
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