The Manchin deal could raise new barriers to electric vehicle incentives

Democrats’ push to promote electric vehicles may be hampered by some of the supply chain protectionist provisions they included as requirements for obtaining electric vehicle tax credits.

The credits were included as part of the climate deal reached between Senator Joe Manchin (DW.Va.) and Majority Leader Chuck Schumer (DN.Y.), even after Manchin expressed some skepticism about them. .

In order for consumers to receive the full $ 7,500 for the purchase of a new electric vehicle, a portion of the minerals in that vehicle’s batteries will need to be mined or refined by countries with free trade agreements with the United States.

Part of the credit is also tied to a percentage of battery components manufactured in North America.

Experts and industry players have indicated that these provisions, especially the critical mineral piece, represent a high level and could hinder the adoption of electric vehicles in the short term.

John Bozzella, president and CEO of Alliance for Automotive Innovation, said companies are working to bring more of their supply chain to the United States, but “it’s also a change that doesn’t happen overnight.”

“A likely outcome of this bill (as currently constructed) is that a significant number of consumers will not be able to take advantage of this credit in the first few years when it is most needed,” Bozzella said in a statement.

Electric vehicles have been a central component of Democratic plans to combat climate change, and electric vehicle tax credits have been included in various iterations of President Biden’s Build Back Better package.

The Manchin-Schumer bill grants consumers tax credits worth up to $ 7,500 to incentivize the purchase of new electric vehicles, however half of those credits, equal to $ 3,750, depend on where the minerals in the its batteries.

Legislation requires 40 percent of the value of minerals used in electric vehicle batteries to be mined or processed by countries where the United States has a free trade agreement, and it increases over time.

By 2024 it increases to 50 percent and continues until 2027, when 80 percent of the minerals used must come from these countries.

An auto industry source told The Hill they believe there are currently no electric vehicles on the market that meet this requirement.

“I think it will take several years to get there,” said Duncan Wood, vice president of strategy and new initiatives at the Wilson Center.

Wood added that increasing requirements over time “poses a challenge,” but said with enough effort they could be achievable.

“If you have the time, if you have the right incentives for the mining sector, and if you have the processing and refining plants under construction, then it’s entirely possible that you can achieve some of these goals,” he said.

“It will take a Herculean effort to get there,” he added. “The good thing about this legislation is that it provides those deadlines and those deadlines will be an incentive for people to move forward.”

The United States has free trade agreements with some major mineral producers such as Australia and Chile, but does not have such agreements with other large producers such as China, Russia and the Democratic Republic of the Congo.

“The numbers they cite are very high and very early,” said Morgan Bazilian, professor of public policy at the Colorado School of Mines.

“Will those goals become an obstacle or an obstacle to adopting electric vehicles with those goals? Yes, if they are respected precisely and exactly, “she said.

Most of the world’s mining refining takes place in China.

“If you look at the materials of the lithium, cobalt, manganese, nickel, graphite batteries, you will see that almost all of them are completely machined … in China,” said Bazilian. “That’s 75 to 100 percent for all the things I just mentioned.”

E&E News previously reported that some of the supply chains required by credit do not exist.

The other half of the credit is related to battery components manufactured in North America.

Ethan Elkind, director of the climate program at the Center for Law, Energy and the Environment at the University of California at Berkeley, said that while he believes most battery production takes place offshore, companies may be able to take it. in the United States relatively quickly.

“They can get these facilities up and running sometimes quite quickly, but it depends on the state because authorization challenges can definitely hold back some of this production,” he said.

The industry source noted that the provisions could not only limit the new adoption, but could also suspend existing tax incentives for consumers buying an electric vehicle.

Current credits are capped at 200,000 vehicles per automaker and subsequently gradually decrease from a maximum of $ 7,500 per vehicle. Some automakers have either not reached their limit or are currently in the phase-out period, but their customers risk losing that credit moving forward if their vehicles don’t meet the new requirements.

The source said there is a push for changes to the bill, including moving back the timeline for some of the provisions. Bloomberg reported that Ford, General Motors, Toyota and Stellantis are involved in these efforts.

In a statement on Monday, GM described some provisions as “challenging” and said they “cannot be achieved overnight.”

Limits on both consumer income and vehicle value – which limit credits to vans, SUVs, and pickups of $ 80,000 or less and other vehicles that cost $ 55,000 or less – also pose obstacles for some automakers.

Jim Chen, Rivian’s vice president of public policy, said that under his company’s current trajectory, credit would not be able to work for the company’s consumers until 2025, because its vehicles are too expensive.

“The new proposal pretty much cuts our knees off … It basically makes our vehicles unsuitable,” Chen said, noting that his company was also pushing for changes.

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