The United States Senate recently passed one of the most significant climate and energy legislations in history. It’s called the Inflation Reduction Act, and it includes an updated $7,500 electric vehicle tax credit among a slew of new bills backed by $374 billion in climate and energy spending.
The Inflation Reduction Act was approved by the US Senate by a single vote, with Vice President Kamala Harris acting as the tiebreaker.
The tax credit no longer has a 200,000-car cap, which means Tesla, General Motors, and Toyota will be eligible again if and when it passes the US House.
The bill also limits the price of the vehicles as well as the buyer’s earnings. Additionally, there is a new $4,000 credit for used electric vehicles. Plug-in hybrid electric vehicles (PHEVs) will also be eligible for the credit if they have a battery capacity of at least 7 kWh.
Cars will have to source materials from North America in order to qualify (or a country that has a free trade agreement with the US). Beginning in 2024, EV batteries used by automakers must contain at least 40% materials sourced in the United States or from friendly trade partners of the United States. By 2029, that figure will have risen to 100 percent. This means that most current cars aren’t eligible.
China currently has a significant presence in the battery manufacturing industry, and the country is not on the list of friendly trade partners. According to the Alliance for Automotive Innovation, 70% of EVs currently on the market in the United States will not meet the 40% threshold by 2024.
The goal would be for electric vehicle manufacturers selling EVs in the US to build them in North America and source raw materials and parts locally.