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Most electric cars won't qualify for Democrats' new $7,500 tax credit

Tesla electric cars charge at a Supercharger.
Tesla electric cars charge at a Supercharger.George Rose/Getty Images
  • Democrats are poised to pass the Inflation Reduction Act, a major piece of President Biden's agenda.

  • It includes a renewed tax credit for electric-car buyers.

  • But the new program has restrictions that would exclude most current electric models.

Congress is on the verge of passing a major piece of President Joe Biden's agenda in the form of the Inflation Reduction Act, a law that aims to, among other things, curb climate change by revamping the federal government's tax credit for people who buy electric vehicles.

Taxpayers will be able to cash in on rebate credits for energy efficiency efforts at home, with the bill providing credits for everything from installing solar panels to electric stoves.

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But there's a catch for drivers. As the bill is currently written, most electric cars on the market wouldn't qualify for the new $7,500 incentive once it goes into effect next year.

EV buyers have benefited from a $7,500 tax-time kickback since 2010, but the revised program would add layers of new restrictions aimed at boosting US manufacturing. To qualify for the full credit, vehicles will need to be made in North America, use North American battery components, and contain raw battery materials either sourced from North America or from countries the US has a trade agreement with.

Currently, prospective car buyers can choose electric vehicles from a wide range of manufacturers and receive a credit. But the restrictions on battery minerals and assembly will become stricter over time.

Of the 72 electric, hybrid, and hydrogen vehicles on the US market, 70% would immediately become ineligible for credits when the bill passes, according to the Alliance for Automotive Innovation, a trade group.

No current models would qualify once additional restrictions are enforced, the group of automakers said, noting the program is far too onerous to have its desired effect.

"The $7,500 credit might exist on paper, but no vehicles will qualify for this purchase incentive over the next few years," John Bozella, the organization's president, said in a statement.

Some of today's most popular electric models, like the Hyundai Ioniq 5 and Kia EV6, are built abroad and wouldn't qualify for credits. The new program would extend credits to used EVs and to Tesla and General Motors vehicles, which are currently ineligible for credits after both brands sold more than 200,000 qualifying cars.

Congress's goal is to increase adoption of clean vehicles, support domestic manufacturing, and reduce US dependence on foreign suppliers, particularly China, for critical battery materials. China refines 59% of the world's lithium and 75% of its cobalt, according to Benchmark Mineral Intelligence.

But entirely new supply chains can't be built overnight, and automakers are pushing for looser rules that take effect more gradually. Even before the bill was announced, carmakers and suppliers were working furiously to build up domestic battery production, vehicle assembly, and mining.

"The auto industry is a big industry. It takes some time to steer the ship," Chris Harto, a policy analyst at Consumer Reports, told Insider. "If they don't get more time, then there will probably be a short, couple-year period where a lot of automakers don't qualify."

According to Brett Smith, director of technology at the Center for Automotive Research, it could take a long while for automakers to adjust their supply chains. In the interim, consumers are bound to be disappointed by the lack of discounts, he said.

"Over the next several years as that whole ecosystem develops, it may be tough to find products that meet the standard," Smith said.

Read the original article on Business Insider