WASHINGTON (Aug 17): Electric vehicles are getting pushed out of the US priority lane. A US$430 billion climate plan President Joe Biden is due to sign today aims to incentivise consumers to buy cars that rely on cleaner energy. But eligibility for up to US$7,500 in tax credits targets suppliers from China and other countries, undercutting environmental goals.
The financial incentives to buy electric vehicles, passed by Congress on Friday, are too limiting to be effective. The plan includes standards that favour domestic production, like requiring that final assembly take place in North America. Starting in 2024, vehicles that have parts or components from a "foreign entity of concern" won’t be eligible.
The arrangement ignores today’s supply chain. According to the US Department of Energy, China has nearly 80% of the global lithium-ion battery manufacturing capacity, a key component for electric vehicles. Yet the new rules that go into effect next year require at least 40% of the monetary value of critical minerals for batteries be from the United States or an American free-trade partner. It gradually rises to 80% in 2027.
Many electric vehicle models may not qualify. The Alliance for Automotive Innovation estimates that 70% of the 72 models eligible for the current US$7,500 EV credit would be banned under new criteria. And none would get the full incentive once the sourcing requirements are completely adopted. Most automakers are trying to interpret the measures, including Tesla and General Motors, both of which maxed out on existing tax credits but would be eligible again if vehicles meet the revised criteria.
The package undermines Biden’s climate goals. The president wants electric vehicles to make up half of US auto sales by 2030. Only about 173,000 cars would qualify for the tax credit by that time, according to the nonpartisan Congressional Budget Office. The figure represents about 1% of the estimated cars to be sold this year, according to Cox Automotive.
Boosting domestic production of electric vehicles and the components that go into them are laudable long-term goals. The realities of how goods move around the world today require a practical transition to that future. Instead, the congressional plan puts the race to fight climate change in the back seat.