The U.S. Senate recently passed a new “climate bill” as part of the Inflation Reduction Act of 2022. This act allocates $370 billion of taxpayer funds to programs to help “expand the accessibility of renewable energy” and electric vehicles within the United States over the coming decade.
The bill seeks to incentivize owners of gas-fueled cars to switch to EVs in the near future. It includes a proposed tax credit of up to $7,500 for new EV owners and up to $4,000 for those who already owned EVs to trade in used vehicles for newer models.
While this theoretically sounds positive for Tesla and the economy in Texas, further inspection of the bill reveals it will be difficult for people to qualify for the tax incentive.
First, the bill needs the approval of the House regarding the production of new EVs. Companies like Tesla would have to alter their resourcing to meet strict requirements.
The tax incentive will only be granted if new vehicles meet all the new requirements pertaining to where they source the vehicle’s battery and locate final assembly line operations. The plan proposes that EV manufacturers stop sourcing materials from China beginning in 2023.
At present, no EV manufacturer meets the new bill’s provisions.
Tesla met the tax incentive for EVs under the current law, which allowed credits for up to 200,000 EVs that the manufacturer had already sold.
If passed, the new bill would remove the current cap and allow Tesla and other EV manufacturers to qualify for new tax credits through the next 10 years, as long as sourcing requirements are met.
Companies that continue to produce EVs without meeting these new requirements would be ineligible for tax credits.
If the policy passes before EV companies can amend their current supply chains to meet the new requirements, it could significantly slow EV production, sales, and job creation.