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Tax Bill Tries to Make EVs More Affordable; May Do the Opposite

The federal Inflation Reduction Act includes a provision that would update the tax credit regulations for new electric vehicles to decrease or eliminate foreign-made parts in cars, which could possibly make EVs more expensive.

(TNS) — A provision in the federal Inflation Reduction Act that aims to make electric vehicles affordable to more people may end up having the opposite effect, but it still isn't clear to what degree the limitations it imposes might affect sales, Maine businesspeople said.

The clean vehicle credit updates the requirements for the existing tax credit of up to $7,500 on new electric vehicles, or EVs, to help defray the cost of an EV, which typically is a few thousand dollars pricier than a gas car. But its future requirements to decrease or eliminate foreign-made parts in cars would disqualify cars from the credit if manufacturers can't quickly meet the new obligations, possibly making it more expensive to buy an EV.

"I think it's well intentioned but challenging," said Adam Lee, chair of Lee Auto Malls, a chain of 16 dealerships in Maine. "I'm not sure what good it's going to do for us to pass a bill that nothing qualifies for."

It is hard to say now which vehicles will meet the requirements, and more information should be released by the federal government in a couple months, said Molly Siegel, program manager for electric vehicle initiatives at Efficiency Maine Trust, a quasi-government agency charged with administering programs to improve energy efficiency and reduce greenhouse gasses. She expects the Department of Energy to list the covered vehicles on its website under the new plan much as it does now under the existing plan.

EVs are a key component of Gov. Janet Mills' clean energy goals. The state needs 219,000 light-duty EVs, or 1 in 6 vehicles, on the road by 2030 to meet the goal of curbing greenhouse gas emissions by 45 percent. However, a report issued by the Mills' administration in December said Maine doesn't have enough money to meet its EV goals.

Still, the state has made progress since 2019 by increasing battery and plug-in hybrid vehicles by 90 percent to 5,577 vehicles and public charging stations by 65 percent to 265 locations. Fewer than 1 percent of vehicles on the road now in Maine use clean energy.

The $740 billion bill, which passed the Senate last weekend and is expected to pass the House on Friday before heading to President Joe Biden's desk, is aimed at helping boost EV ownership. It also includes some of the most sweeping climate provisions seen to date.

"The bill is fantastic overall as far as the climate provisions," said Jeff Marks, former Maine director of the Acadia Center who is now a member of the climate business group ClimateWork Maine. "Anything that broadly provides more access to EVs is a step in the right direction, but I'm hoping some of the materials requirement doesn't cut down on the effectiveness of the overall intent of the bill."

The bill would take effect next year, but for a buyer to get a full credit, 40 percent of the metals in the car's battery must come from North America, and that would rise to 80 percent by 2027 and 100 percent by 2029. If the metals requirement isn't met, buyers would get only half of the tax credit. A separate rule would require that half the batteries' value be manufactured or assembled in North America or the rest of the tax credit would be lost.

There are 72 models of EVs sold in the United States, including battery, plug-in hybrid and fuel cell vehicles. Some 70 percent would immediately become ineligible for the tax credit when the bill passes, and none would qualify for the full credit as the additional sourcing requirements roll out, John Bozzella, president and CEO of the industry group Alliance for Automotive Innovation, wrote in a recent blog.

Lee said the bill will encourage U.S. EV and parts makers to find sources of the lithium, cobalt, manganese and graphite materials that go into batteries in this country, but it will take time.

"This will certainly encourage us to figure out how to find them in places where we don't have to worry about trade agreements, but I don't think we can do it in a year and a half," he said. "So it's really taking away the rebates."

Siegel is taking a wait-and-see attitude but said she is optimistic about the bill. Several provisions open up the potential EV market, including one that would lift the current limit on EV sales that qualify for the tax credit to 200,000 vehicles per manufacturer.

The bill also creates a commercial clean vehicle credit that could help businesses that want to buy larger trucks. It would give up to a $40,000 credit for vehicles weighing more than 14,000 pounds. There's also $1 billion targeted for a heavy duty vehicle grant and rebate program from the U.S. Environmental Protection Agency. A credit for charging equipment that expired at the end of 2021 also is renewed. There also is a new tax credit for up to $4,000 for a used EV purchase.

The EV tax credits in the bill run through 2032, which Siegel said is good news to help Maine meet its climate goals by 2030. She is cautiously optimistic about the outcomes of the bill.

Lee, who says he's generally a pessimist, also is optimistic about the bill's overall support for EVs.

"It certainly is a big change to see everybody — the manufacturers, state government and federal government — actually embracing electric cars," Lee said. "As Sen. [ Angus] King has often said, 'you make a start and then you can fix it.'"

(c)2022 the Bangor Daily News (Bangor, Maine) Distributed by Tribune Content Agency, LLC.
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