Large car manufacturers in the US would like to apply some changes to the electric vehicle federal tax credit (up to $7,500), which would extend the availability of the incentive.
Top representatives from the four companies noted that they are investing heavily in electrification, but the production costs are increasing.
"The CEOs -- GM's Mary Barra, Ford's Jim Farley, Stellantis' Carlos Tavares and Toyota North America CEO Tetsuo Ogawa -- said in the joint letter to congressional leaders that they have pledged to invest over $170 billion through 2030 to bolster electric vehicles’ development, production and sale."
"Recent economic pressures and supply chain constraints are increasing the cost of manufacturing electrified vehicles which, in turn, puts pressure on the price to consumers."
We have all known for years that the federal tax credit system has serious flaws. And these have been discussed multiple times over the years.
The main issue is that the $7,500 tax credit phases out after selling 200,000 plug-ins (counted separately for each manufacturer). It does not promote the companies that started early. It already caused the two largest domestic players - Tesla and General Motors - to be no longer eligible for the incentive for a few years. There are some other smaller issues because the incentive is a tax credit rather than a rebate at the point of sale.
Soon, EVs from other manufacturers also will not be eligible for the incentive. Toyota probably has reached the 200,000 mark in Q1 2022 or this quarter, but we are still waiting for official info. Ford is expected to be next, later this year.
How it works today:
The federal tax credit amount is up to $7,500 per car (the full amount is for plug-ins with a total battery capacity of at least 16 kWh).
After officially reaching 200,000 units, the full amount will be available through the end of the particular quarter, during which the limit was reached, and for the following quarter (so for a period of over 3 months to nearly 6 months, depending on date of reaching the limit). Then it will be decreased to 50% for another two quarters (up to $3,750) and to 25% for the final two quarters (up to $1,875).
New idea: a sunset date instead of the 200,000 limit
According to the joint letter, the idea is to remove the limit for each individual manufacturer, and replace it with a more general target - like a date, probably related to the overall sales volume/market share - when the incentive will be phased out.
"We ask that the per-(automaker) cap be removed, with a sunset date set for a time when the EV market is more mature,"
There are also other ideas about the federal tax credit, including an increase in the amount for union-made EVs (criticized by manufacturers, including Toyota, Volkswagen and Tesla) or offering it only for EVs built in the US (it raised opposition from Canada and other countries).
Time will tell whether we will see something new in 2023, which potentially would make a big change in the market, especially for Tesla and General Motors, which are operating without the incentive.