Electric cars win and lose with Biden’s package

The package of climate and energy laws that passed the US Congress on Friday (12) aims at two goals that are not always compatible: making electric vehicles more affordable while excluding China from the supply chain.

Auto industry representatives have complained that the proposed $7,500 tax credits for EV buyers come with so many conditions that few cars will qualify. Buyers can’t have very high rents, vehicles can’t cost too much, and cars and their batteries have to meet US manufacturing requirements that many automakers can’t easily achieve.

“It will be much harder for cars and consumers to qualify for a federal tax credit to buy an EV,” said John Bozzella, president of the Alliance for Automotive Innovation, which represents major US and foreign automakers.

Some companies will benefit more than others from the sweeping legislation known as the Inflation Reduction Act.

The new credits favor companies like Tesla and General Motors, which have been selling electric cars for years and have reorganized their supply chains to produce vehicles in the United States. A joint venture between GM and LG Energy Solution will soon open a battery factory in Ohio, as part of a wave of investment in electric vehicles by automakers and suppliers.

Vehicles sold by Tesla and GM will regain entitlement to incentives that automakers lost because they sold beyond their quota of 200,000 electric cars under current law. The new legislation eliminates this limit.

The legislation may be more thorny for companies like Toyota and Stellantis, which own Chrysler, Jeep and Ram, because they have yet to start making or selling large numbers of battery-powered vehicles in the United States.

The legislation effectively penalizes new electric car companies, such as Lucid and Rivian, whose vehicles can be too expensive to qualify for the credits. The incentives apply to sedans that do not cost more than US$55,000 (R$283,000) and pickup trucks, vans or SUVs that cost up to US$80,000 (R$412,000).

Lucid’s cheapest sedan costs more than $80,000. Rivian electric pickup trucks start at $72,500 but can easily go up to $80,000 with options. The company said it is exploring whether customers can secure the incentives by making a binding purchase agreement before the new law takes effect.

Even automakers that could lose access to tax credits can benefit from the law in other ways. The project includes billions of dollars to help automakers build factories and establish local supply chains. Dealers will profit from a provision that grants $4,000 in credits for used electric vehicles, with few restrictions.

“We have to look at this law in its entirety,” said Margo Oge, former director of the Environmental Protection Agency’s Office of Transportation and Air Quality. “Is it perfect? ​​No. It will create jobs and it will be good for the weather.”

Once automakers make the changes to supply chains required by law, they will be able to offer customers generous incentives for the rest of the decade and beyond. It may take a few years, but over time the legislation will help make electric cars cheaper than gasoline and diesel vehicles, analysts say.

“The consumer tax credit was certainly not written the way I would,” Democratic Senator Debbie Stabenow told reporters this week, referring to the $7,500 incentive. But in order to get the bill passed, she said it complied with Democratic Senator Joe Manchin’s wishes. Manchin said it makes little sense to subsidize electric vehicles because demand is so great that there are long waiting lists for many models.

Still, Stabenow added, “There are many wonderful things here for us.”

One feature of the bill that has generated the most complaints would require that by 2024 at least 50% of an electric car battery’s components come from the United States, Canada or Mexico. The percentage rises to 100% by 2028. And the share of minerals in batteries that need to come from the United States or a trade ally will rise to 80% by 2026.

Some industry executives said it would take automakers five years to overhaul their supply chains long enough for their products to qualify for tax credits.
Others say it’s an exaggeration. “I would be shocked if that were the case,” said Joe Britton, executive director of the Zero Emission Transportation Association, whose members include Tesla and suppliers of batteries and raw materials.

While the organization would have preferred fewer restrictions, Britton said, “we still see this as a big accelerator of the electrification of transport, especially compared to where we were a month ago.”

Some of the tax credit eligibility restrictions may not be as strict as they seem and can be interpreted. For example, Stabenow said, it looked like the $7,500 credit would be valid for all manufacturers until next year, before content restrictions kick in.

Over time, income caps will encourage automakers to offer cheaper vehicles, said Mark Wakefield, a leader in the automotive and industrial section at consultancy AlixPartners. “You’ll see a laser focus to stay below the $80,000 and $55,000 thresholds,” he said.

Price caps and rules created in the United States will also encourage automakers to develop cheaper batteries that require fewer imported raw materials. Tesla and other automakers are already selling cars with iron-phosphate batteries, known as LFPs, rather than nickel- and cobalt-containing ones, which are expensive and come from countries with questionable human rights and environmental histories. Iron phosphate batteries are heavier, but generally less expensive and longer lasting. The Inflation Reduction Act “will increase LFP growth,” Wakefield said.

The legislation contains other provisions that have received less attention but could accelerate sales of electric vehicles and reduce greenhouse gas emissions.

There is money to help companies install electric vehicle chargers, for example. This is important for people who don’t have garages or driveways where they can install their own chargers.

There are also tax credits of up to $40,000 for electric or hydrogen trucks and buses. Commercial vehicles account for a disproportionate percentage of greenhouse gases and harmful pollutants from the transport sector, because they spend much longer on the road than passenger cars.

Translated by Luiz Roberto M. Gonçalves