Elon Musk Wants The Electric Vehicle Tax Credit To Disappear; Joe Manchin Might Oblige
Planning to buy an electric vehicle? Your net cost could depend on how successful the lobbyists of General Motors
Back in 2008, in an effort to jump start the electric car business, Congress created a nonrefundable tax credit of up to $7,500 for eligible vehicles–a credit which (as modified in 2009) starts to phase out once a carmaker has sold 200,000 electric vehicles. After a manufacturer hits the initial cap, the credit gets slashed by 50% for half a year and then by 75% for another half a year, before disappearing entirely.
But the carmakers–or at least most of them anyway–aren’t ready to give up that credit crutch. In a letter to congressional leaders last week, the CEOs of GM, Toyota Motor North America, Ford Motor Company and Stellantis, asked that the per manufacturer cap be removed, with a sunset date set for “a time when the EV market is more mature.” That, they argued, would “provide greater consumer choice” and “will incentivize consumer adoption of future electrified options and provide much-needed certainty to our customers and domestic workforce.”
In fact, President Joe Biden’s original, now dormant Build-Back-Better plan would have sweetened the credit substantially—with the maximum credit increasing by $4,500 for cars assembled domestically with union labor, with an additional $500 credit tacked on for batteries made in the U.S. The bill also would extend the credits for a decade and make them refundable—meaning you could get the credit back as a check from Uncle Sam if you didn’t owe income taxes. (Currently, the credit can only be claimed to the extent it offsets income tax liability. That, along with the higher cost for electric vehicles, has resulted in the credit going primarily to the better off.)
Even without the passage of BBB, the carmakers who signed onto last week’s letter are still hoping they might at least get the vehicle caps on the current $7,500 credit lifted while Democrats control Congress.
Tesla CEO Elon Musk isn’t helping in the four carmakers’ efforts–at least not directly or publicly. Although Musk previously advertised off the tax credits, posting on Twitter both when the $7,500 credit and the halved $3,750 credit were about to expire to encourage U.S. buyers to purchase their vehicles quickly, last December, the anti-union Musk slammed the Democrats’ BBB proposal. And then he went even further. “I’m literally saying get rid of all subsidies. But also for oil and gas,’’ he said.
Musk complained last week in an interview with the club Tesla Owners Silicon Valley that the credit now puts Tesla at a disadvantage. “Tesla is successful currently in spite of our competitors having materially greater tax advantages than Tesla — in spite of it, not because of it,” he said. “If you eliminated all EV incentives tomorrow, Tesla’s competitive position would improve significantly. I’ll say that again, if you eliminated all…EV tax credits, Tesla’s position would improve immediately.”
While Musk didn’t sign the other automakers’ letter, Tesla is a member of Zero Emission Transportation Association, which recently released a report calling for clean energy tax incentives, and has advocated in favor of the consumer EV tax credit, including expanding it to encompass used vehicles, as well as to make it refundable.
Musk may be the richest man in the world and one of the most outspoken, with 99 million followers on Twitter, but he’s not the biggest obstacle to making sure future electric car buyers get a credit.
That would arguably be Manchin, the conservative Democrat who stomped on BBB last December and is now reportedly negotiating with Senate Majority Leader Chuck Schumer (D-N.Y.) for some sort of stripped down version of the bill which would include energy incentives, as well as some tax hikes on the rich and some deficit reduction. (All 50 Senate Democrats, including Manchin are needed if Democrats want to push through a package without the support of Republicans.)
Biden’s version of the bigger electric vehicle credit likely won’t happen, largely due to Manchin’s opposition to the union provision. While Manchin called the bonus for union-made cars “wrong” and “not who we are as a country,” he has also expressed skepticism of the credit overall.
“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 credit to buy electric vehicles,” Manchin said during a Senate budget hearing in April. “It makes no sense to me whatsoever. When we can’t produce enough product for the people that want it and we’re still going to pay them to take it—it’s absolutely ludicrous in my mind.”
The credit has also been criticized by Republicans for going primarily to the better off–a function of its current nonrefundable nature, as well as the high price of electric cars. Last August, Manchin — along with Sens. Krysten Sinema (D-Ariz.) and Mark Warner (D-Va.) — voted with GOP lawmakers for a non-binding budget amendment that would restrict the EV tax credit to individuals making less than $100,000 and for vehicles that cost less than $40,000.
Toyota signing the letter in support of lifting the cap for the current credit could have been specifically pointed toward Manchin, Rep. Debbie Dingell (D-Mich.) indicated to Reuters and a source familiar with the negotiations told Forbes. Toyota’s only combined engine and transmission plant in North America is in Putnam County, West Virginia. According to the company, the plant employs about 2,000 people and has invested over $10 million “in various local philanthropic and educational initiatives over the past two decades.” It is not unionized.
Last September, top Toyota executives wrote to the Ways and Means Committee objecting to the BBB provisions providing bigger credits for electric vehicles made in unionized plants, saying it makes the “objective of accelerating the deployment of electrified vehicles secondary by discriminating against American autoworkers based on their choice not to unionize.’’ They added: “This is unfair, it is wrong, and we ask you to reject this blatantly biased proposal.”
Manchin’s office has not disclosed whether he would support the tax credits without the union incentive, and did not respond to Forbes’ questions about whether he favors lifting the 200,000 cap.
The automakers, for their part, insist that despite waiting lists for some electric vehicles, the extension of at least the current credit is needed. A spokesperson for Stellantis said that the EV market “needs help to reach critical mass” and that “lifting the cap is the most expedient means to that end.”
Ed Lewis, Director of Public Policy Communications at Toyota, told Forbes in an email that tax incentives for EV customers will help accelerate the transition to an electric future. “As we learned with Prius, products are only part of the equation,” Lewis said. “We can build great, reliable electric cars – but we need to help customers understand, afford and ultimately adopt this technology in order to have a real impact. To realize the long-term promise of electric mobility, Toyota supports a comprehensive public policy approach, including tax incentives, that encourages drivers to choose the low-carbon drivetrain that suits their circumstances best.”
Benjamin Zycher, who focuses on energy and environmental policy as a senior fellow at American Enterprise Institute, points out that the automakers with broad product lines (meaning, not Tesla), have a particular need to keep the electric vehicle sales flowing in order to “achieve the fleet average fuel economy standards at the federal level.” If the credit runs out, he said, they will “have to raise the price of conventional vehicles and lower the price of EVs” to meet those goals.
“I understand why they’re arguing [for lifting the cap], but we really shouldn’t have this EV tax credit at all,” Zycher said, adding that if the automakers succeed in their effort to lift the cap, “it’s not very realistic” to think that the tax credit wouldn’t be extended again after that. “What you’d wind up with under the automakers is no cap at all on the number of vehicles and no sunsetting of the EV credit either,” he said.