How the New Climate Bill Favors Some Automakers Over Others

Did Congress play favorites when it comes to the new Climate Bill, or is it legislation that should work for all companies producing electric vehicles?

There’s really no secret that Congress works to freeze out China whenever possible. This is usually good for Americans. Too often in the last few decades, we’ve seen jobs sent to other countries, especially China and Taiwan because those countries lack labor laws and unionized autoworkers. Thankfully, Congress is making some sense with this new Climate Bill, but does it favor some automakers over others?

What Seems to be the Problem?

The original Federal EV Tax Credit was getting long in the tooth, and many automakers were running out of credits. Toyota was the latest to reach the 200,000 unit threshold that would begin the reduction in the value of this credit. Tesla and GM had long surpassed this mark. Even though a new $7,500 credit was approved for EVs, many automakers complain that too many strings are attached to this credit, making it difficult to offer it on electric vehicles being sold. That said, this credit, along with other proposed credits and benefits, is meant to help the average American, not those in higher income brackets.

What is the Purpose of the new Climate Bill?

The goals of this new bill, also known as the Inflation Reduction Act, are meant to accomplish two goals. The first goal is to make electric vehicles more affordable. In the past couple of years, the average price of new vehicles has skyrocketed out of reach for most Americans. Even with creative financing, the average person can’t afford a new car, and they can forget buying one that runs on electricity.
The second goal is to freeze China out of the supply chain of parts for qualifying EVs. Considering China is the largest supplier of EV parts and the largest EV market in the world right now, this might be a lofty goal. That said, this is how the bill was written and it’s meant to reward automakers that can adhere to the approved changes.

Why are Automakers Upset About the Proposed Changes?

In the past, a consumer’s income didn’t matter when it came to the EV tax credit. Now, this does matter. If a shopper has an income above the threshold, they don’t qualify for the credit. If a vehicle reaches above a specified price level, it doesn’t qualify for the credit. And the kicker, if the cars and batteries don’t meet the made-in-America requirements, they don’t qualify for the credit. It certainly seems that Congress is sending a clear message to the auto industry. That message is one that tells them if they want to sell qualifying EVs in the United States, they will make some changes; otherwise, their customers won’t qualify for these credits. The newly proposed credits aren’t unreasonable when you see what’s included and what automakers need to do to offer them to their customers.

Building American is Truly a Benefit

Automakers that have built their batteries and vehicles in the United States for many years will easily receive the credits. This puts GM and Tesla, which both lost the benefit early because of the number of EVs sold, at the front of the line. GM is opening a battery plant in Ohio as part of a joint venture with LG Energy Solutions. Tesla has been building batteries and cars in the United States since it began and continues to do so. Expect these two companies to lead the way once again in this area of the market.

Foreign Companies Will Face Troubles

Companies, including Toyota and Stellantis, that don’t build and sell large numbers of electric vehicles in the United States will face challenges. In order to adhere to the new Climate Bill, these companies will need to build battery facilities in the United States to have the made-in-America stamp on their cars.

Smaller Companies Might Be Priced Out of the Bill

The new electric vehicle incentive applies to electric cars that cost no more than $55,000 and SUVs and trucks that don’t cost more than $80,000. That immediately takes Lucid and Rivian out of contention. This threshold is much too low for these two companies to qualify and offer any price break for their customers.

Rivian might be in an interesting position to explore loopholes. The base price of the R1T is $72,500, and the company is exploring whether a customer could enjoy the incentives before adding options to the mix.

Silver Linings to Bring More Automakers Into the Mix

Instead of leaving automakers out of contention and leaving them there, the new Climate Bill calls for billions of dollars to help automakers build factories and establish the local supply chains necessary to freeze out China. This could help many companies become eligible to offer qualifying EVs to their customers.
In addition to the assistance offered to automakers, the bill offers dealers a provision granting $4,000 credits for used EV sales without the same strings attached to the new models. This is a new way to offer benefits to those shoppers looking at the used electric vehicles offered that didn’t have any incentives in the past.

Some Automakers are Just Looking for Complaints

We all know those people that love things to stay the same all the time. These are the folks that carry flip phones, drive old cars, and always complain about the foreign companies selling cars in the United States. Some automakers are this way, claiming it will take them five years or more to qualify for credits and meet the thresholds set in place. If we’ve learned anything in the past few years, it’s that the auto industry can adapt when it has to. This is a time when it has to.
This new Climate Bill is meant to bring more jobs into America, offer incentives to those that would benefit the most, and keep China out of our cars as much as possible.

For the most part, this bill does a good job of doing that. It’s now up to the automakers to bring the EV prices down and revamp their supply chains to meet the requirements of this new bill.