CEOs of America’s 4 largest automakers have joined forces and asked Congress to remove the current tax credit ceiling for electric cars. CEOs have sent a letter asking Congress to renew the tax credit system, which currently provides buyers with $ 7,500, but ends when each carmaker reaches 200,000 cars sold.
CEOs are convinced that giving up the tax credit limit will encourage mass consumer acceptance of electric cars and trucks.
The letter was addressed to Senate Majority Leader Chuck Schumer, Senate Minority Leader Mitch McConnell, MP 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 America CEO Tetsuo “Ted” Ogawa.
Last week, Ford’s chief executive Bill Ford took an unannounced trip to Capitol Hill to push for an extension of the tax break.
Tesla, a leader in the field of electric cars, as a manufacturer of electric cars, achieved sales of 200,000 qualified vehicles in December 2019. GM reached the limit of 200,000 vehicles in the last quarter of 2018, helped by sales of the Volt hybrid sedan and fully electric Chevy Bolt EV. Toyota said in April that it expects its credits to expire by the end of 2022. Ford has sold nearly 160,000 electric vehicles by the end of 2021 and could reach the limit this year. Other automakers expect them to reach 200,000 as they launch a range of new electrical products.
Keeping the tax credit limit could help increase sales under President Biden’s goal of switching 50% of all new car sales to pure electricity by 2030.
Conflicting views on clean transport incentives
In May 2021, the Senate Finance Committee passed a 14:14 equality legislation on the Clean Energy Act for America, which included a proposed increase in the current federal tax rebate on electric vehicles to $ 7,500 for the purchase of zero-emission electricity. vehicle. The law sought to remove the current EV limit of 200,000 vehicles per manufacturer, while the loan should be phased out over a period of 3 years once 50% of passenger car sales in the United States are accounted for by EVs.
Senator Debbie Stabenow (MI-D) has proposed a law that would increase the $ 7,500 tax break by $ 2,500 on U.S.-assembled vehicles and another $ 2,500 on electric vehicles manufactured in facilities whose production workers are union members or they represent them. such as UAW. Last year, many Democrats in Congress and President Joe Biden proposed raising tax breaks on electric cars to $ 12,500 – including an $ 4,500 incentive for union-built, assembled vehicles in the United States. The proposal would also phase out credits for electric vehicles made outside the United States, sparking opposition from Canada and other car-producing countries.
A $ 12,500 EV tax credit, it was claimed, would help speed up the adoption rate of electric vehicles in the US, which is currently 3.4% of all vehicles sold. In addition, Biden supported a 30% credit for commercial electric vehicles, a $ 4,000 tax credit for used electric vehicles, and a refund of existing credit at the point of sale.
The bill stopped and needed approval from the Senate and the House of Representatives. Given the divided Congress, postponing the bill now seems unlikely.
In April, Senator Joe Manchin (D-Coal) questioned the need to extend tax breaks to electric cars in the face of strong consumer demand and Chinese production of battery components. “Right now, there is a waiting list for electric cars with a fuel price of $ 4. But they still want us to throw in $ 5,000 or $ 7,000 or $ 12,000 to buy electric vehicles. It doesn’t make any sense to me, “said Manchin. “If we can’t make enough products for the people who want it and we still pay them to take it – I think it’s absolutely ridiculous.”
Manchin previously opposed union incentives only, as did Toyota.
A recent letter to Congress does not mention the union’s incentive.
Next-generation tax breaks for low-carbon technologies
Achieving emission reductions to achieve zero net emissions across the economy by 2050 will require sustained technological innovation and the widespread deployment of emerging low-carbon technologies that are not yet commercially deployed, the World Resources Institute working paper said. . The authors say that tax breaks are an important policy tool to support the introduction of new technologies at an early stage, as well as more advanced technologies that have not yet become widespread.
The document outlines how decarbonising the US economy to achieve a 50-52% reduction in emissions by 2030 and net zero emissions by 2050 will require a substantial deployment of available and emerging alternatives to fossil fuel-based technologies. The authors argue that there are gaps in current tax credit structures due to critical design shortcomings.
- Federal tax breaks have been caught in an endless cycle of expiration and renewal, sometimes retroactively. These short-term tax breaks create uncertainty and discourage the private sector from planning long-term.
- 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 stock market. A refundable tax credit allows the taxpayer to receive the entire tax credit in the form of payment or other compensation, regardless of the amount of tax due. The direct payment option specifically refers to the possibility of receiving payment in full of the tax credit.
- Once tax incentives are in place, they need to be reviewed regularly to ensure that eligibility and duration keep pace with rapidly changing technologies and markets. Without a review of tax breaks, in many cases they have failed to sustain innovation.
- The current federal tax breaks do not apply to many low-carbon technologies that are necessary to decarbonise various sectors of the US economy, including energy storage, transmission, medium and heavy zero-emission vehicles, commercial and industrial heat pumps, industrial transformation technologies, and hydrogen production.
- In other cases, existing tax breaks, such as Section 45Q credit, are insufficient and can be further improved for the deployment of new technologies, such as direct air capture.
Framework for removing the EV tax credit limit
The U.S. federal electric tax rebate was first introduced by the Obama administration in 2009 and entered into force on January 1, 2010. It was intended to help drive sales of low- and zero-emission vehicles in the U.S., including plug-in hybrids, fuel cell vehicles and fully electric vehicles. models. A tax credit of up to $ 7,500 for the purchase of a zero-emission vehicle could be combined with other local incentives.
Major carmakers have argued for years that the current policy of imposing a tax credit cap on 200,000 sales penalizes the first users of fully electric transport technologies. Management argues that credit is necessary to keep vehicles affordable as production and commodity costs rise. Inflation trends in the US and abroad have affected carmakers as they face rising raw material costs, especially nickel and cobalt used in EV batteries, and these rising costs are reducing carmakers’ margins. The price of nickel jumped by more than 29% since last year. Prices of metals such as aluminum, which are used on vehicle bodies, jumped by more than 50% compared to the previous year.
The letter he saw Reuters, amid growing concerns among automotive executives that a window is closing for the U.S. Congress to extend tax breaks on electric cars if Republicans regain control of one or both chambers of Congress next year. The CEOs said they had pledged more than $ 170 billion by 2030 to boost the development, production and sale of electric vehicles, including short-term investments of more than $ 20 billion in the United States.
“We are calling for the removal of individual (automotive) restrictions with an expiration date set for a time when the EV market will be more mature,” explain car manufacturers. “Recent economic pressures and supply chain constraints have increased 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 policy must work to strengthen our global leadership in the automotive industry,” the CEOs continue. “Removing the limit will motivate consumers to accept future electrified options.”
“We are calling for the removal of the (car) cut-off date set for the time when the EV market will be more mature.”
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