EV tax credits could win over consumers, but union controversy remains
Washington — Future electric vehicle owners could drive off the lot with an additional $12,500 in their pockets courtesy of their fellow taxpayers under legislation that is nearing the finish line on Capitol Hill after weeks of negotiations.
President Joe Biden's administration on Thursday released a framework deal on the proposed social safety net and climate bill that they say has enough support to pass both the House and Senate, indicating holdout votes from Sens. Joe Manchin of West Virginia and Kyrsten Sinema of Arizona have likely been secured.
The legislation is not yet set in stone, and policymakers caution that there's still the possibility it could change or for Senate rules to disqualify it from the package. However, authors of the EV tax credit legislation say they haven't yet faced opposition from within the Democratic caucus that might derail the policy.
It marks a significant step forward for the proposal that has stirred controversy in the American auto industry by including a $4,500 credit for vehicles built in unionized assembly plants — a provision that would be a boon to the Detroit Three automakers over Tesla Inc. and foreign auto producers whose U.S.-based workforces are not members of the United Auto Workers or other unions.
Experts say the overall proposal could be a game-changer in helping the industry overcome one of the biggest barriers electric vehicle adoption: The persistent split between expensive electric vehicles and budget-friendly gas-powered cars.
The proposal would lift the 200,000 vehicle per manufacturer cap, which has stopped General Motors Co. and Tesla from continuing to benefit from the existing program. For five years, the legislation would implement $7,500 point-of-sale consumer rebates for electric vehicles and pay out an additional $4,500 for vehicles assembled in a union facility. Another $500 would be awarded for vehicles using a battery manufactured in the U.S.
For the next five years after that, the $7,500 base credit would only apply to electric vehicles made in the U.S., but the other two incentives would stay the same.
While electric vehicles cost less to own over the course of their lifetime by reducing gasoline and maintenance costs, automakers are still pricing them 10-to-20% higher than equivalent gas-powered models.
And unlike the existing electric vehicle tax credit — which requires EV buyers to claim it on their taxes at the end of the year and can only be fully used if your tax burden is at least $7,500 — customers would get the discount when they buy their new car, making vehicles accessible to those who couldn't otherwise wait a year to get $12,500 back from the government.
"That I think is probably the single biggest benefit out of all of this," said Sam Abuelsamid, principal research analyst at Guidehouse Insights. The current system "gives more benefit to higher income people who really don't need it as much as lower- and middle-income consumers."
Who's in and who's out
The goal of reaching low- and middle-income buyers is a reason Sen. Debbie Stabenow, D-Lansing, and Rep. Dan Kildee, D-Flint Township, who authored the legislation, say they sought to bar the wealthiest Americans and the most expensive vehicles from qualifying for the discount.
Sedans under $55,000, vans under $64,000, SUVs under $69,000 and pick-up trucks under $74,000 would be eligible for the credits. Individuals with an adjusted gross income of up to $400,000, heads of households making up to $600,000 and joint filers making up to $800,000 would be able to use the program — benchmarks Kildee has said align with Biden's pledge not to raise taxes on people who make more than $400,000 annually.
The credits would cost around $15.5 billion over the 10 years they would be available, Kildee's office estimates. Republicans in Congress have argued that the income caps are too high and that taxpayers shouldn't subsidize the shift to electric vehicles, which currently make up only around 2.5% of total new car sales globally.
However, opposition to the proposal has mostly focused on the boost for union-made vehicles, which would be a big advantage for GM, Ford Motor Co. and Stellantis NV, whose workforce is represented by the United Auto Workers.
Executives at 12 major foreign automakers — including Honda Motor Co., BMW AG, Hyundai Motor Co., Nissan Motor Corp., Volkswagen AG and Toyota Motor Corp. — asked Pelosi to ditch the provision, and Tesla CEO Elon Musk wrote on Twitter that the package was "written by Ford/UAW lobbyists." The Republican governors of 11 right-to-work states also wrote to Congressional leaders opposing the union credit.
"We do not understand why our American workforce, which has chosen not to unionize, is being penalized for that decision that they are able to make," said Jennifer Safavian, CEO of Autos Drive America, a trade group representing major foreign automakers producing and selling vehicles in the U.S. The group does support expanded tax credits without the union provision.
The group has been in touch with Democratic lawmakers who have raised concerns and noted the legislation is far from final, she said: "There's no difference in the electric vehicle and the reduction in emissions that those electric vehicles can do and help the climate."
Kildee and Stabenow say the legislation still will make significant strides toward cutting emissions by making EVs affordable for more Americans.
They say the focus on domestic and union manufacturing will make the U.S. more competitive with China and incentivizing employers to give workers good wages and benefits. Workers who belong to unions make more on average than those who don't, according to the Bureau of Labor Statistics, though those data are not specific to the auto industry.
"When we were putting it together, we thought, here's a chance for us to write policy that's consistent with our values, cutting down on emissions, saving the planet, making sure America is building for its own future," Kildee said.
The UAW, the Detroit Three automakers, energy companies DTE Energy Co. and Consumers Energy Co., and leading environmental organizations such as the League of Conservation Voters, the Environmental Defense Action Fund and the Sierra Club have expressed support for the legislation as written.
"It would be a win for auto manufacturing workers," UAW President Ray Curry said in a statement Thursday. "The framework announced today supports good paying union jobs and stands to benefit our country for decades to come."
Abuelsamid said the union provision may have the effect of pushing more automakers to unionize to take advantage of the credits, depending on the company culture.
"Tesla is just not ever going to allow a union in factories. As long as Elon Musk is in charge, he's gonna fight it tooth and nail," he said. "Others like Volkswagen, they might encourage union representation in order to be able to sell more vehicles at a competitive price."
Both Abuelsamid and Brett Smith, director of technology at the Center for Automotive Research, said the point-of-sale discount should make the vehicles more accessible as automakers ramp up production as planned over the next several years.
"The industry and proponents of electric vehicles know they have to do something in the short midterm to make EVs more cost competitive," Smith said.
That will require three things, he said: Funding for commercial applications, funding for technology development, and funding to give consumers a point-of-sale discount while EVs remain financially out of reach for most.
That's where the credits come in, Stabenow said, easing the transition as automakers bring the technology to scale.
"We know that the more people are purchasing new technology, the more the price comes down," she said. "We want to help create the volume as quickly as possible and get people in great new electric vehicles and also cut emissions that are wreaking havoc in Michigan and our Great Lakes as well as across the country."
But Smith warned that the union portion of the legislation "will continue to be divisive," which could endanger technology adoption and regulatory stability if political winds change in the future.
"When do (EVs) become a cool technology that people like because it's better than the other alternative? That may be getting closer and closer," he said. "Until it's there, things like that create tension."