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Senate Finance Committee Advances Bill That Includes Raising the Federal Tax Credit up to $12,500 on U.S.-Made EVs

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【Summary】​After a hearing on Wednesday, the U.S. The Senate Finance Committee advanced legislation for the “Clean Energy for America Act”, which includes a proposed increase to the current federal EV tax credit of up to $7,500 on the purchase of a zero emissions electric vehicle. The bill also includes a 30% tax credit for manufacturers to retool or build new facilities to produce advanced energy technologies including EV batteries, as well as incentives to for the purchase commercial electric vehicles.

Eric Walz    May 27, 2021 2:00 PM PT
Senate Finance Committee Advances Bill That Includes Raising the Federal Tax Credit up to $12,500 on U.S.-Made EVs

After a hearing on Wednesday, the U.S. The Senate Finance Committee advanced legislation for the "Clean Energy for America Act", which includes a proposed increase to the current federal EV tax credit of up to $7,500 on the purchase of a zero emissions electric vehicle.

The "Clean Energy for America'' bill, which advanced on a 14-14 tie vote, would eliminate the existing EV cap of 200,000 vehicles per manufacturer, while the credit would phase-out over three years once 50% of U.S. passenger vehicle sales were EVs. 

The bill must still be approved by the full Senate and U.S. House of Representatives.

The bill was introduced by Sen. Ron Wyden of Oregon and more than 20 colleagues. It's intended to replace a patchwork of more than 40 seperate energy tax policies with a more simplified plan that includes three categories of tax incentives—clean electricity, clean transportation and energy efficiency. The bill also eliminates subsidies for fossil fuels.

The bill also includes a 30% tax credit for manufacturers to retool or build new facilities to produce advanced energy technologies including EV batteries and new incentives to purchase commercial electric vehicles like the new Ford F-150 Lightning Pro pickup built for commercial and fleet customers.

The EV part of the proposal led by Senator Debbie Stabenow, a Michigan Democrat, would boost the $7,500 tax credit by $2,500 for vehicles assembled in the United States and by another $2,500 for EV built at facilities whose production workers are members of, or represented by a labor union.

A $12,500 EV tax credit could help speed up the adoption rate of electric vehicles in the U.S., which currently is less than 2% of all vehicles sold. 

But it would mean smaller tax credits to automakers such as Tesla, Volkswagen, Hyundai and others who do not employ UAW workers, as well for companies like Audi that build EVs overseas.

United Auto Workers President Rory Gamble supports the legislation. He said that "EV production will directly create the good paying union jobs of the future President Biden has championed."

The original federal EV tax credits were introduced by President Barack Obama in 2009 and went into effect on Jan 1, 2010. It too was designed to spur the adoption of electric or plug-in hybrid vehicles in the U.S. by encouraging drivers to switch to a fully-electric or plug-in hybrid vehicle (PHEV).

At the time, President Obama declared a goal of reaching 1 million plug-in vehicles sold in the U.S. by 2015. 

The Federal EV Tax Credit Helped Tesla

The Obama era tax credits for EVs and hybrids was especially welcomed by automakers like Tesla and General Motors that offered fully-electric vehicles that qualified for the full $7,500 amount. However it was only available for the first 200,000 vehicles sold by each automaker. After the limit is reached, the tax credit begins to phase out over a 18 month period. 

The 200,000 vehicle limit has already been reached by Tesla and General Motors.

Under the current model, after a vehicle manufacturer reaches sales of 200,000 qualifying vehicles, the tax credit is halved two calendar quarters later to $3,750, then halved again after two more calendar quarters to $1,875. Six months later the tax credit expires completely, which happened to Tesla on Dec 31, 2019.  

General Motors reached the 200,000 vehicle limit in the final quarter of 2018, boosted by sales of the hybrid Volt sedan and fully-electric Chevy Bolt EV. Qualifying GM vehicles were eligible for a partial tax credit up to $1,875 until July 1, 2020.

When the EV tax credit took effect in 2010, Tesla was still a niche electric vehicle startup, delivering just a small number of hand-built Tesla Roadsters, the automaker's first vehicle.

However, as sales of the electric Model S increased after its introduction in June 2012, the tax credit became an important marketing tool for Tesla, serving as an extra incentive to buy one of Tesla's premium and expensive electric vehicles. 

When combined with California's own EV tax credit of up to $2,500, customers that purchased a Tesla Model S in Tesla's home state of California received tax credits totaling $10,000, which helped the company establish itself as a formidable competitor to rival automakers selling only gas-powered models. 

However, new EV tax credits still could be a big boost for Ford Motor Co. which recently released the Mach-E SUV, its first fully-electric model. In addition, an electric version of Ford's popular F-150 pickup arrives next year.

In April 2019, a bipartisan group of U.S. lawmakers introduced legislation to expand the electric vehicle tax credit to include an additional 400,000 vehicles per manufacturer, on top of the current cap of 200,000 vehicles.

The 2019 bill was dubbed the "Driving America Forward Act" and would have granted each automaker a slightly lower $7,000 tax credit for an additional 400,000 vehicles. But the bill failed to gain support.

The latest bill would also limit tax credit to vehicles with a retail price below $80,000. Biden ruled out consumer incentives for high-priced electric luxury models and urged automakers not to build EVs abroad for U.S. consumers.

President Joe Biden has proposed $174 billion for electric-vehicles and charging stations, including $100 billion for consumer rebates as part of a larger $2 trillion infrastructure package. The revised EV incentives are estimated to cost roughly $31.6 billion through 2031, according to a congressional estimate.

Many agree that the 2010 federal EV tax credit helped launch the electric vehicle market in the U.S. and helped put Tesla on equal footing with more established global automakers. But the proposed plans could now help Ford and GM catch up to Tesla, which is now the world's most valuable car company.

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