Congress recently unveiled a draft proposal to expand refundable tax credits up to USD 12,500 for individuals who purchase qualified plug-in electric vehicles (PEVs) – including battery electric (BEV), plug-in hybrid (PHEV), and, for the first time, fuel cell electric vehicles (FCEV). The proposed program to “green the fleet” is part of the Build Back Better spending bill that Congress is considering in tandem with the Infrastructure Investment and Jobs Act that the Senate passed in August 2021. Build Back Better would cost USD 3.5 trillion over ten years, while the Infrastructure Investment and Jobs Act contains USD 944 billion in total spending over five years.

The bipartisan infrastructure bill that passed the Senate reauthorizes the national surface transportation program and provides an additional USD 550 billion over baseline funding for traditional infrastructure. The next step in passing this bill into law is for the House of Representatives to approve it. However, House Speaker Pelosi has pledged to delay voting on this bill until the Senate passes the Build Back Better spending bill that provides funding for a wide array of social, economic programs, and environmental programs (such as EV tax credits) to ensure both bills reach the President’s desk. Congress is hoping to pass the larger spending bill through a process called budget reconciliation. A reconciliation bill would require only a bare majority of votes to pass the Senate rather than being subject to a two-thirds vote necessary to override a filibuster.

The reconciliation package expands and modifies tax credit programs that provide consumer incentives to purchase electric vehicles. The proposal for new consumer incentives would wholly replace the current USD 7,500 maximum refundable tax credit with a program that contains:

  • USD 4,000 for any plug-in electric vehicle of greater than 7 kWh of capacity
  • Plus an additional USD 3,500 for vehicles with batteries of greater than 40 kWh of capacity
  • Plus an additional USD 4,500 for vehicles with final assembly by unionized labor
  • Plus an additional USD 500 for vehicles with battery cells manufactured in the United States that also have greater than 50 percent domestic content

For the first time, the proposed program would make FCEVs and used PEVs eligible for purchase incentives. It would also eliminate the per-manufacturer 200,000 unit cap in the existing program—enabling buyers of General Motors and Tesla vehicles to qualify for federal tax credits again. Finally, the draft legislation includes a provision that allows consumers to opt to receive the credit at the time of purchase vs. waiting to claim the credit on next year’s tax return, which lowers the up-front cost and amount financed.

While the proposal is expansive, there are several caveats and limitations to the program:

  • Qualifying vehicles would have an MSRP limit ranging from USD 55,000 for a sedan to USD 74,000 for a pickup truck
  • Starting in 2027, only vehicles with U.S. final assembly would qualify for this program
  • Credits would be available in full to vehicle buyers with adjusted gross income up to a threshold limit of USD 400,000 per individual, USD 600,000 for a head of a household, and USD 800,000 for joint returns.

The new PEV tax credit program has garnered some opposition from GOP lawmakers—framing it as a gift to unions and relatively wealthy car buyers, non-union automakers who object to the USD 4,500 credit, and importers and trading partners object to the eligibility sunset for imported vehicles.

As this legislation moves forward, both the House and Senate will have the opportunity to revise the PEV tax credit program details as part of the negotiations over the reconciliation spending bill. It remains unclear if this current USD 3.5 trillion spending package will achieve enough support to pass the Senate.

CAR will continue to monitor the progress of this legislation and its potential impacts on the automotive industry and the U.S. economy.

Kristin Dziczek

Senior Vice President, Research

Eric Dennis

Eric Paul Dennis, P.E.

Senior Transportation Systems Analyst

Want to learn more? Listen to The CAR Podcast Episode 4 on propulsion systems, consumer acceptance, and it’s impact to design and manufacturing.

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