Fix the Credit: Automakers Blitz Congress to Fix an EV Tax Credit They Can’t Use

(Bloomberg)

Automakers including Ford Motor Co., General Motors Co. and Toyota Motor Corp. are making a last-ditch lobbying push to change Democrats’ proposed new spending bill over concern that they stand to lose out from strict new limits on electric-vehicle credits.

An extension of the popular $7,500 tax credit available to EV buyers was included in the surprise breakthrough deal reached by Senator Joe Manchin and Senate Majority Leader Chuck Schumer last week. Manchin, a West Virginia Democrat, has long been a skeptic of the credit, dismissing it as “ludicrous” and arguing that it subsidizes production of Chinese-made batteries.

The extension was a huge win for companies such as General Motors Co. and Tesla Inc. that had reached a 200,000-EV-sales threshold at which the perk begins to phase out. But to win Manchin’s support, the credits also included tough new limits on how much the EVs can cost, how much income their buyers can earn, and where the batteries and vehicles are made. With the Senate seeking to pass the hard-fought compromise bill in coming days, automakers are running out of time to get the tax-credit rules tweaked.

“Unfortunately, after they are implemented, at this point it looks like companies won’t be able to use them in the short run,” Senator Debbie Stabenow, a Michigan Democrat who has been instrumental in the negotiations over the credits, said in an interview.

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Limiting the credit could hamper President Biden’s ambitious goal of making 50% of new-vehicle sales emission-free by 2030, a move he said was needed to help curb ever-worsening climate change. Anyone seeking big changes to the climate and spending package face long odds because of the momentum among Senate Democrats who have been seeking a deal that Manchin would bless for over year.

So far, automakers aren’t making much headway, with senators unwilling to consider any substantial changes that would upset support for the bill, according to people familiar with the talks who asked not to be identified.

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Among the restrictions of most concern: Requirements that would render EVs made with any battery components manufactured by China and other “foreign entities of concern” ineligible to receive the credit after 2023. And beginning in 2025, that prohibition extends to the use of any critical mineral in a battery that is extracted or processed by those countries.

That could pose a big hurdle to automakers who have a connection to the Chinese supply chain. The processing of critical minerals typically used in EV batteries, such as lithium, nickel cobalt, and manganese, is done almost exclusively in China, Morgan Bazilian, director of the Payne Institute at the Colorado School of Mines, said in an interview.

“The processing piece is an enormous issue for all of this,” Bazilian said. “What battery manufacturers need is processed chemicals, not rocks.”