Why Tesla and GM may like Joe Manchin
The Democratic plan for climate change is good for automakers
I live in Washington, DC. Occasionally there are surprises here, but not that often. Sen. Joe Manchin doing a deal with Sen. Chuck Schumer on climate change, and so much more, was a bit of a shocker.
This town thought the West Virginia Senator was done with negotiations on President Biden’s climate and social spending bill. However, according to reports, Manchin was still negotiating with fellow democrats in a basement room at the capitol. Suddenly, there was a deal. Automakers got some of what they wanted in the measure, which still must be approved by both houses of Congress.
(Credit: Sen. Joe Manchin)
RAISE AND SPEND
The plan will raise about $740 billion by setting a minimum corporate tax rate of 15% ($313B), prescription drug pricing reform ($288B), IRS enforcement ($124B), and eliminating carried interest for hedge fund managers ($14B).
Half of that revenue will be spent on the energy sector and dealing with climate change. For the automakers, the relevant news starts on page 232 of the more than 700 page bill in a section dubbed, “Energy Security.”
THE CAP LIFTED
The first-starters in Electric Vehicle (EV) manufacturing have been benefiting from the tax credit incentives for buyers. GM and Tesla have been able to take advantage of the federal tax credit of $7,500 for buyers of EVs and hybrids for several years. But once the manufacturers hit the cap of 200,000 vehicles, they lost the tax credit advantage.
The new bill eliminates the cap, which means Tesla and GM will be back in the tax credit game able to tell buyers they can get the $7,500 tax credit. It’s good news for Ford and Toyota, which are just about to hit the cap. The tax credits will stay in place until 2032.
USED VEHICLES TOO
There’s a new tax credit in the bill as well. Americans who buy a used battery electric vehicle will get a $4,000 tax credit.
Auto body shop at Tesla gigafactory in Austin, TX. (Credit:Tesla)
There are a lot of caveats to get the tax credit, which fit within the Biden Administration’s effort to try and create independent supply chains for EVs.
To qualify for the tax credit, a certain percentage of the components in the battery must come from the US or countries that have trade agreements with America. That percentage of those components and rare earth minerals increase over several years.
MADE IN AMERICA
The final assembly of a “clean vehicle” must “occur within North America.” European and Asian carmakers will be able to apply the credit to vehicles made at their American plants, but a BMW imported from Germany will not get the credit.
BMW EV plant in Germany (Credit: BMW)
Many of these restrictions are clearly aimed at China, even though there is no mention of the country in the bill.
Democrats have put in other limitations, which they say are aimed at helping the middle class. A couple making more than $300,000 would not qualify for the credit. For an individual, the cutoff is $150,000. For the used car tax credit those income cutoffs are halved ($75,000 individual-$150,000 couple) to qualify.
NO FERRARIS
Luxury cars will not be included for the tax credit program. If that pickup, van, or SUV you want costs more than $80,000, you won’t be able to take advantage of the federal offer. For any other vehicle the cap for qualifying is $55,000. The used car tax credit will only apply for vehicles that cost less than $25,000.
Carmakers are pleased that Manchin has made a deal. But this is still just a bill- there is no guarantee it will become law.
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(Cover image credit: Sen. Joe Manchin, GM)