U.S. Lawmakers Introduce Bill to Extend Federal EV Tax Credit
A bipartisan group of U.S. lawmakers introduced legislation on Wednesday to expand the electric vehicle tax credit to another 400,000 vehicles per manufacturer, on top of the current cap of 200,000 vehicles. The move to expand the credit is intended to encourage the purchase of electric vehicles.
The bill is sponsored by Democratic Senators Debbie Stabenow and Gary Peters, Republican Senators Lamar Alexander and Susan Collins and Democratic Representative Dan Kildee.
The bill is called the "Driving America Forward Act" and would grant each automaker a $7,000 tax credit for an additional 400,000 vehicles on top of the existing 200,000 vehicles eligible for $7,500 tax credits. However, it would shorten the phase-out period from 15 months to 9 months.
The bill would also extend the hydrogen fuel cell credit through 2028. According to Reuters, the bill is estimated to cost $11.4 billion, with all but $91 million of that tally to extend the EV tax credit.
Supporters hope to attach the proposal to tax legislation that could be considered in the next few months.
The bill could boost electric vehicle sales for automakers that have committed tens of billions of dollars toward meeting global emissions requirements. Although EV sales have doubled since 2016 in the U.S., they still make up just 2 percent of total auto sales, according to the latest figures from IHS Market. Nearly half of all EV sales are in California.
"We have a cap that's got to go up," Stabenow told a group of automakers at a dinner last week. "I want to get this done as soon as possible."
The federal EV tax credit of up to $7,500, which took effect in 2010, was designed to promote the adoption of electric and plug-in hybrid vehicles in the U.S. The tax credit allows taxpayers to deduct part of the cost of buying an electric car However, the credit begins to phase out once a automaker reaches cumulative sales of 200,000 qualifying vehicles, which electric automakers Tesla and General Motors have already sold.
Tesla was the first automaker to reach sales of 200,000, since all of its vehicles qualify for the full tax break. General Motors reached that number during the fourth quarter of 2018. As a result, Tesla's tax credit was halved to $3,750 on Jan. 1 and GM saw its credit cut by half starting on April 1.
Right now, the tax credit is halved two calendar quarters after reaching sales of 200,000 vehicles to $3,750, then halved again six months later to $1,875 before being eliminated entirely.
The Bill is Backed by the Automakers
The proposal to extend the vehicle cap has strong backing from automakers. The bill is backed by GM, Tesla, Toyota Motor Corp, Ford Motor Co, Fiat Chrysler Automobiles NV, Honda Motor Co, BMW AG, Nissan Motor Co, Volkswagen AG, as well as utilities and environmental groups. However, it faces strong opposition from the Trump administration.
Last month, the White House proposed immediately eliminating the $7,500 tax credit, a move it said would save the U.S. government $2.5 billion over a decade. President Trump even threatened to to cut all the subsidies GM receives, including the federal EV tax credit after the automaker announced plant closures and massive layoffs in Nov 2018 as part of a restructuring move.
GM President Mark Reuss said in a statement "the EV tax credit provides customers with a proven incentive as we work to establish the U.S. as a leader in electrification."
The 2019 Chevy Bolt EV no longer qualifies for the full $7,500 federal EV tax credit since GM reached the 200,000 vehicle limit.
Senator John Barrasso, a Republican who chairs the Environment and Public Works Committee, in February proposed legislation to end the EV tax credit and instead impose a highway user fee on EVs to pay for road repairs.
Michael Brune, executive director of the Sierra Club, said "as we build and grow the clean energy economy, we must continue to invest in tackling the sector that generates the most pollution: transportation."
Automakers including Tesla and General Motors have been lobbying Congress for more than a year to extend or expand the EV tax credit, pushing for the extension of the 200,000 vehicle cap. So far, the two automakers are the only ones that reached sales of 200,000 qualifying vehicles.
For electric automaker Tesla, the consequences of losing the tax break is significant.
A small part of Tesla's success in the U.S. can be attributed to the federal EV tax credit. Tesla advertised its vehicles with the $7,500 discount already factored in. Buyers in California are also able to take advantage of an additional state EV tax credit of up to $2,500.
When combined together, Tesla buyers in California once received a $10,000 tax break on the purchase of a Tesla vehicle before the credit was cut in half on Jan 1.
GM's credit drops to $1,875 in October and ends in April 2020, while Tesla's credit falls to $1,875 in July and expires at the end of the year, unless new legislation is passed to extend it.
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