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Joe Biden’s ambitious climate-plus spending deal is a positive step toward climate change but has raised serious concerns about the EV market in the country. Read to learn more.

Any step taken towards a healthier, cleaner environment is welcome. The Democrats’ climate, tax and healthcare bill is a step toward that.

Passed recently, the $740 billion package aims to address climate change, reduce the cost of prescription drugs, and impose higher taxes on corporations.

The bill includes a provision of $370 billion – the biggest investment in US history to fight climate change, including excellent incentives to boost renewable energy and EV adoption in the country. However, the government’s plans to encourage the purchase of EVs by expanding consumer tax credits come with a catch.

Electric vehicle tax credit

The climate, tax, and healthcare package proposed tax credits of up to $7500 for purchasing new and used electric vehicles through 2032. However, the bill mandates certain conditions to qualify EVs for this tax credit-

• The tax credit will be available to people with an income of less than $150,000
• Incentives are available for Sedans costing up to $55,000 and vans and pickup trucks of up to $80,000
• The EV batteries must be built in North America along with other critical materials
• The EV must be assembled in North America

While these requirements aim to boost domestic production and supply chain for EV materials in the US, most EV manufacturers might fail to be eligible for tax credits.

How does it affect the electric vehicle market?

For EV giants like Tesla and General Motors, this is good news since they have already established their supply chains in the US. But the same cannot be said for other EV manufacturers in the US, who lack the resources and production capacity to mine battery materials locally.

Even with automakers aiming to invest in the domestic supply chain, the facilities will take years to be fully functional. As a result, EV manufacturers depend on China for materials – but any Chinese battery materials are not eligible for tax credits under the new policy. In addition, the requirement that EVs must be assembled in North America will be effective immediately.

Thus, instead of boosting EV adoptions like it intends to, the bill could effectively bring down the list of eligible EVs from 72 to 25, affecting the EV market.

At the same time, the bill proposes to introduce the domestic batteries and materials requirements in phases over time, giving manufacturers much-needed relief for a while.

Also Read: What are the major shifts in the EV charging industry?

But what about the buyers?

• If a buyer has already purchased an EV assembled outside North America, they will not qualify for the current tax credits.
• However, the provision for battery materials and minerals will not go into effect until later, so buyers might qualify for credits on that.
• Buyers can wait until the following year to buy an EV eligible under the new policy and avail of the tax credits.

Is it a step forward?

This climate-plus spending deal is a welcome change to endorse clean energy – with massive investments and support for technologies like zero-carbon fuels. In fact, experts suggest that the policy can help the US get closer to its goal of a 50% reduction in greenhouse gases by 2030.

However, to reach its goal of a cleaner environment, the country will need to reduce its dependence on fuel vehicles and shift to electric cars. Thus, when government support to manufacturers is the need of the hour, the new EV tax credit policy will do little to achieve this.