This Feature story was updated on 10 November 2021 to reflect the passage of the bipartisan infrastructure bill (Infrastructure Investment and Jobs Act).

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 The Build Back Better bill now costs USD 1.75 trillion (was USD 3.5 trillion) over ten years.

The partner bill, the Infrastructure Investment and Jobs Act, passed the Senate in August 2021 and the House in November 2021. The IIJA contains USD 944 billion in total spending over five years reauthorizing the national surface transportation program and provides an additional USD 550 billion over baseline funding for traditional infrastructure, including USD 7.5 billion for building EV charging infrastructure and USD 9.5 billion for hydrogen R&D and demonstration programs.

As of 10 November 2021, House Speaker Nancy Pelosi plans to pass the Build Back Better legislation before Thanksgiving and send it to the Senate. Members postponed a vote to await cost estimates from the Congressional Budget Office. Congress is hoping to pass Build Back Better 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, but there are strict rules on what can be included in reconciliation legislation.

The Build Back Better 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 10 kWh of capacity and less than a 2.5-gallon gasoline tank (in the case of plug-in hybrids).
• 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 in the United States
• Plus an additional USD 500 for vehicles with battery cells manufactured in the United States

Vehicles meeting all of these requirements would be eligible for a USD 12,500 income tax credit. 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 depending on vehicle type: Larger vehicles such as SUVs, pickup trucks, and vans are capped at USD 80,000. All other vehicles are capped at USD 55,000.
• 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 250,000 per individual, USD 375,000 for a head of a household, and USD 500,000 for joint returns.
• There is a limit of one credit per year per taxpayer.

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, Congress may alter the PEV tax credit program details as Members and Senators negotiate the final spending bill. While the bill is expected to pass the House once the Congressional Budget Office cost estimates are available, it remains unclear if this current USD 1.75 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.

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.