Facing Rising Production Costs, Automakers Ford, GM, Stellantis and Toyota Urge Congress to Lift the Cap on the $7,500 EV Tax Credit
With rising inflation in the U.S. its not just consumers dealing with higher prices, the world's biggest automakers are also dealing with rising costs of raw materials, especially for nickel and cobalt used in electric vehicle batteries. As automakers invest billions into electrifying their models lineups they are asking congress to lift the 200,000 vehicle cap on the federal EV tax credit of $7,500 to help boost sales of new fully-electric models.
As reported by Reuters, Ford Motor Co, General Motors, Chrysler parent Stellantis and Japan's Toyota Motor Corp urged Congress on Monday to lift a cap on the $7,500 electric vehicle tax credit, citing higher vehicle production costs of zero emissions electric vehicles.
The letter the automakers sent to congress was seen by Reuters.
The CEOs of each automaker, GM's Mary Barra, Ford's Jim Farley, Stellantis' Carlos Tavares and Toyota North America CEO Tetsuo Ogawa, said in the joint letter that they have collectively pledged to invest over $170 billion through 2030 to bolster electric vehicles' development, production and sale, now they are requesting that the tax credit cap be lifted to help boost sales as part of President Biden's goal of having 50% of all new care sales be electric by 2030.
"We ask that the per-(automaker) cap be removed, with a sunset date set for a time when the EV market is more mature," the automakers said in the letter viewed by Reuters.
"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."
The current EV $7,500 credit on a fully-electric vehicle tax credit phases out after a manufacturer sells 200,000 qualifying vehicles. As an electric-only automaker, Tesla reached sales of 200,00 qualifying vehicles in Dec 2019. GM reached the 200,000 vehicle cap in the final quarter of 2018 boosted by sales of the hybrid Volt sedan and fully-electric Chevy Bolt EV. GM vehicles were still eligible for a partial tax credit up to $1,875 until July 1, 2020.
As a result, Both GM and Tesla are no longer eligible for the consumer tax credits, while Ford and Toyota still are. However Toyota said in April it expected its credits would expire by the end of 2022 after it hits the cap.
While Ford sold nearly 160,000 electric vehicles through the end of 2021 with brisk sales of the fully-electric F-150 Lightning and Mustang Mach E. The automaker could hit the cap by this year.
In May of last year, U.S. The Senate Finance Committee advanced legislation of a 14-14 tie vote for the "Clean Energy for America Act", which included a proposed increase to the current federal EV tax credit of up to $7,500 on the purchase of a zero emissions electric vehicle.
The Clean Energy for America Act proposes to eliminate the existing EV cap of 200,000 vehicles per manufacturer, while the credit would phase-out over three years once 50% of U.S. passenger vehicle sales were EVs.
The EV part of the proposal led by Senator Debbie Stabenow, a Michigan Democrat, would boost the $7,500 tax credit by $2,500 for vehicles assembled in the United States and by another $2,500 for EV built at facilities whose production workers are members of, or represented by a labor union, such as the UAW. Toyota opposed the union portion of the bill as it does not employ UAW workers, nor does Tesla.
A $12,500 EV tax credit could help speed up the adoption rate of electric vehicles in the U.S., which currently 3.4% of all vehicles sold, according to the latest data.
The bill however stalled and must still be approved by the full Senate and U.S. House of Representatives, which seems more unlikely with a divided Congress.
In April, Senator Joe Manchin, a key Democrat needed to pass this type of legislation, questioned the need to extend electric vehicle tax credits at all as demand increases for EVs.
"There's a waiting list for EVs right now with the fuel price at $4. But they still want us to throw $5,000 or $7,000 or $12,000 in credit to buy electric vehicles," said Manchin. "It makes no sense to me whatsoever."
About the EV Tax Credit
The federal tax credit on electric vehicles was first introduced in 2009 by the former President Obama administration and went into effect on Jan 1, 2010. It was intended to help spur the sales of low and zero emissions vehicles in the U.S., including plug-in hybrids (PHEVs), fuel cell vehicles and fully-electric models. The generous tax break of up to $7,500 on the purchase of a zero emissions vehicle could also be combined with other local incentives.
At the time, President Obama declared a goal of reaching 1 million plug-in vehicles sold in the U.S. by 2015.
The tax credit was especially welcomed by automakers offering fully-electric models which qualified for the full $7,500 amount, including GM and Tesla.
The EV tax credit helped Tesla establish itself in the U.S. The company was still a niche electric vehicle startup in 2010, delivering just a small number of hand-built Tesla Roadsters, the automaker's first vehicle.
However, as sales of the electric Model S grew after its introduction in June 2012, the tax credit became an important marketing tool for Tesla, serving as an extra incentive to buy one of Tesla's premium and expensive electric vehicles.
When combined with California's own EV tax credit of up to $2,500, customers that purchased a Model S in Tesla's former home state of California received tax credits totaling $10,000.
Ironically, now that Tesla has gained a foothold in the U.S. auto industry with its environmentally friendly vehicles, U.S. buyers can no longer take advantage of the federal EV tax credit that was intended to boost their adoption.
Under the current EV tax credit model, after a vehicle manufacturer reaches sales of 200,000 qualifying vehicles, the tax credit is halved two calendar quarters later to $3,750, then halved again after two more calendar quarters to $1,875. Six months later the tax credit expires completely, which happened to Tesla on Dec 31, 2019.
Automakers are now dealing with the rising costs of raw materials, which lower their margins. Prices of metals like aluminum used for vehicle bodies have jumped by over 50% from a year ago. Other raw materials, including nickel and lithium used for electric vehicle batteries have also increased dramatically. The price of nickel has jumped by over 29% since last year.
These rising prices are being passed on to consumers in the form of higher prices for vehicles. But lifting the caps on the EV tax credit could benefit the automakers, as well as consumers that are dealing soaring gas prices and rising inflation.
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