New EV Tax Credit in Budget Proposal Favors Domestic Production

If the proposed budget reconciliation bill passes, it would include a huge electric vehicle tax credit, though it’s not without some stipulations.

The $3.5 trillion “Budget Reconciliation Legislative Recommendations Relating to Infrastructure Financing, Green Energy, Social Safety Net, and Prescription Drug Pricing” (catchy!) would replace the EV tax credit of 2010, which provided a refund of up to $7,500 (based on the size of the battery).

The 2010 version applied to the first 200,000 units sold per OEM, before the credit titrates down to nothing. And it’s mostly still intact – Tesla hit the 200K milestone in 2018 and its credit disappeared entirely in 2019, and GM has also maxed out its credit. But the incentive remains for the rest of the auto industry, and the EV portion of this massive 645-page bill would supplant what came before it.

And while it’s (potentially) extremely generous – up to a $12,500 tax credit – it has some major provisions. The initial $4,000 would apply across the board, but from there, the clauses take effect.

According to Ars Technica, an additional $3,500 applies if the vehicle’s battery capacity is at least 40 kWh (increasing to 50 kWh for new vehicles in 2027 onward), and a further $4,500 pertains to EVs manufactured at a unionized U.S. facility. This latter provision would exclude both Tesla – which hasn’t unionized – and foreign automakers who set up shop in “right-to-work” states.

And the final $500 applies if >50% of the vehicle’s content is made in the U.S.

But the provisos don’t stop there.

As Ars Technica points out, “From 2027 on, the credit will only apply to vehicles that undergo final assembly in the US, and they must weigh less than 14,000 lbs (6,350 kg) and carry more than 7 kWh in battery capacity (for vehicles in 2022 and 2023) or 10 kWh (for vehicles placed in service after 2023).”

The credit also decreases for every $1,000 you earn filing jointly at $800,000, $600,000 as the head of the household, and $400,000 for individual filers. And there’s even more criteria relating to the actual cost of the vehicle. There’s even sections dealing with e-bikes.

The budget reconciliation bill is pretty far from a sure thing, and not coincidentally, automakers that would be excluded – like Honda and Toyota (and one would assume, Tesla) – have ardently opposed it.