With New EV Tax Credits Being Proposed, is Tesla & Toyota Being Treated Unfairly Because They Don't Employ Union Workers?

With New EV Tax Credits Being Proposed, is Tesla & Toyota Being Treated Unfairly Because They Don't Employ Union Workers?

Author: Eric Walz   

Talks have continued in Washington DC since the spring about boosting the federal EV tax credit to help spur the adoption of zero emissions vehicles in the U.S. However, electric vehicle pioneer Tesla Inc and Japan's Toyota Motor Corp are surprisingly being left out in the latest proposal. 

The two automakers are now at odds with Ford Motor Co and the United Auto Workers (UAW) union over a proposal by Democrats in the U.S. The House of Representatives wants only "union-made, U.S.-built electric vehicles" to receive the additional $4,500 tax incentive.

The proposal would raise the maximum tax credit for qualifying electric vehicles from $7,500 to $12,500, including a $500 credit for electric vehicles equipped with batteries made in the U.S. It also proposes a new EV tax credit for commercial vehicles, a 15% credit for electric bicycles and a $2,500 credit for the purchased of a used EV.

The EV tax credits are part of President Joe Biden's proposed $3.5 trillion spending bill. The bill is scheduled to be taken up on Tuesday by the House Ways and Means Committee.  

The bigger tax incentives could be a huge boost for rival Ford Motor Co., especially with the upcoming launch of the new F-150 Lightning. The battery-powered version of the best selling truck in the U.S. could become a big seller when it goes on sale next year and extra tax credits could be a great marketing tool for Ford.

On the surface, it appears that the bigger tax incentives for EVs would only benefit Detroit's "Big Three" automakers; General Motors, Ford, and Stellantis NV, the parent of Chrysler. 

Although all three automakers count on gas-guzzling full-size trucks and SUVs for a bulk of their profits, the companies assemble their U.S.-made vehicles at plants with workers represented by the UAW.

But the likely possibility of not receiving any additional tax credits seems unfair to Tesla, as the company is now the world's most valuable automaker. Tesla is also a pioneer in the EV space and has led the auto industry's transition to electric vehicles around the world. 

However, since Tesla and Toyota manufacturing employees are all hourly and not part of the UAW, qualifying electrified vehicles from Tesla and Toyota will be exempt from the higher tax incentives. Toyota expressed its concerns in a letter to Congress.

Toyota said the plan discriminates against nearly half of American auto workers that are not represented by the UAW and called on lawmakers to reject giving "exorbitant tax breaks" to wealthy buyers of high-priced cars and trucks.

The proposal also would remove the 200,000 vehicle cap for the tax credit, which both General Motors and Tesla have already passed. Tesla became the first automaker to reach that limit in July, 2018 after the launch of the mass-market Model 3 sedan. 

Not surprising, Tesla Chief Executive Elon Musk is highly critical of the new proposals. In a tweet on Sunday, he wrote that the revised EV incentives were "written by Ford/UAW lobbyists, as they make their electric car in Mexico. Not obvious how this serves American taxpayers."

Musk singled out Ford since the automaker builds its electric Mustang Mach-E in Mexico at its Cuautitlan Stamping and Assembly Plant. Since the Mach-E is built in Mexico, it would not qualify for the larger tax credit anyway. But Ford will build the upcoming F-150 Lightning and electric Transit van in the U.S. using UAW employees.

Ford spokesman Mark Truby told Reuters on Tuesday that Ford will build its EV F-150 Lightning in Michigan and all-electric E-Transit van in Kansas City, MO, "with much more to come," he said.

The UAW fully supports the proposed tax credits for EVs built in the U.S. 

"For too long U.S. tax credits meant to create good-paying American jobs have subsidized products not made in the United States or at substandard wages," said UAW President Ray Curry in a statement. 

The federal tax credit for the purchase of an EV was first introduced in 2009 by the former Obama administration and went into effect on Jan 1, 2010. The credits were designed to spur the adoption of electric or plug-in hybrid vehicles (PHEV) in the U.S. It encouraged drivers to switch by offering a tax credit that could be combined with other local state incentives.

At the time, President Obama declared a goal of reaching 1 million plug-in vehicles sold in the U.S. by 2015. 

When the EV tax credit took effect in 2010, Tesla was still a niche electric vehicle startup, delivering a small number of hand-built Tesla Roadsters, the automaker's first EV. 

However, as sales of the electric Model S increased after its introduction in 2012, the tax credit became an important marketing tool for Tesla, serving as an extra incentive to buy one of Tesla's premium vehicles. Tesla advertised the price of its vehicles on its website with the $7,500 tax credit already factored in.

When combined with California's own EV tax credit of up to $2,500, customers that purchased a Tesla Model S, Model X or Model 3 in California could get a tax credit of up to $10,000, which helped Tesla establish itself as a formidable competitor to rival automakers selling gas-powered models. However, this was before Tesla reached the 200,000 vehicle cap. 

Toyota has been building cars in the U.S. since 1986, when it began manufacturing Corolla sedans in a joint venture with GM named New United Motor Manufacturing Inc. The former joint venture factory in Fremont, California is now home to Tesla. 

Earlier this year, Toyota reached a milestone by building its 30 millionth vehicle in the U.S. The automaker also has 10 manufacturing plants in the U.S. that employ around 36,000 workers. 

Despite Toyota's massive contributions to the U.S. economy over the years, the EV tax proposals are leaving the automaker on the sidelines, along with Tesla, simply because the two automakers do not employ UAW workers. 

Regardless of how this plays out in Washington going forward, many people agree that the federal EV tax credit has helped to launch the EV market in the U.S. as it was intended. It helped put newcomer Tesla on equal footing with more established global automakers in the span of a decade. 

Ironically, now that Tesla leads the growing EV market in the U.S. with its environmentally friendly, fully-electric vehicles, U.S. buyers can no longer take advantage of the federal EV tax credit that was intended to boost their adoption. For Tesla it's like a slap in the face.

Eric Walz
Eric Walz
Originally hailing from New Jersey, Eric is a automotive & technology reporter covering the high-tech industry here in Silicon Valley. He has over 15 years of automotive experience and a bachelors degree in computer science. These skills, combined with technical writing and news reporting, allows him to fully understand and identify new and innovative technologies in the auto industry and beyond. He has worked at Uber on self-driving cars and as a technical writer, helping people to understand and work with technology.
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