Car Industry

EV tax credits jump to $12,500 in latest legislation -- with a catch

GM would be the big winner with the updated regulations, while Tesla would again receive some federal tax credits.

It feels like some sort of changes to EV tax credits will eventually occur.
Joe Daniel Price/Getty Images

Federal EV tax credits are back in the spotlight on Capitol Hill. The Senate Finance Committee on Wednesday advanced the Clean Energy for America Act. Chairman Ron Wyden, a Democrat from Oregon, released the final markup of the legislation as it moves another step closer to a potential vote, and it comes with a massive change to electric vehicle tax credits. This legislation also differs from the previously advanced Green Act.

The total eligible amount for an EV purchase climbs to $12,500, though much of that amount is meant to incentivize automakers to build more EVs in America, and with union labor. That's where the catch comes in: While the $7,500 tax credit remains in this bill, the legislation promises an additional $2,500 if final vehicle assembly occurs in the US. Yet another $2,500 applies if a union represents the plant's workforce, though the bill doesn't state that it has to be in the US. Here, General Motors would be the biggest winner as the automaker's allotment of tax credits expired completely in 2020. With this legislation, GM would once again have fresh ammunition to advertise lower EV prices, in addition to an extra $5,000 boost for UAW workers assembling, for example, the Chevrolet Bolt EV in Michigan.

Ford, however, would lose out, as it builds the Mustang Mach-E in Mexico. The F-150 Lightning, however, would receive the full $12,500, since it checks every box. As for Tesla, it would earn partial credit for assembling the Model Y and Model 3 in the US, though its workforce is not unionized.

A few other major changes come with this bill, too. The tax credits, no matter the amount, only apply to vehicles with an MSRP under $80,000. The price would exclude super luxurious EVs, though funnily enough, the Model S as it's priced now would still qualify with its $79,990 MSRP, although a single option would push it over the threshold. Also, the "credit cap" would disappear and would not limit automakers to a certain number of credits. Instead, in consultation with the Department of Transportation, the federal government would phase out the credit after 50% of the automaker's total annual sales are EVs. The credit would wind down over two years, first by 25%, then 50% before it closes in the third year.

The committee advanced the legislation on a 14-14 party-line vote, as committee rules allowed the bill to move forward despite the tie. It's unclear what chance the legislation stands in an evenly divided Senate and how this potential law would operate alongside the potential for direct rebates for EVs under President Biden's proposed infrastructure package.