Senate Democrats narrowly passed a sweeping climate and economic package Sunday, which includes a series of incentives for purchasers of both new and used electric vehicles.

The incentives in the Senate’s Inflation Reduction Act also come with new requirements on the rules of origin for EVs and batteries to qualify for the incentives is creating concern among auto executives.

There are price and buyer income restrictions on the new tax credits, making most of the current crop of EVs on the market ineligible, critics contend. Sedans costing more than $55,000 and trucks, vans and SUVs more than $80,000 won’t make the cut.

“Unfortunately, the EV tax credit requirements will make most vehicles immediately ineligible for the incentive,” wrote John Bozzella, president and CEO of the Alliance for Automotive Innovation, in a blog post on the group’s website. The lobbying group represents most automakers in the U.S.

Bozella noted in a separate post of the 72 different EVs currently available on the U.S. market, 70% of them would be ineligible for the new credits, an none of the vehicles would get the entire amount.

“The $7500 credit might exist on paper, but no vehicles will qualify for this purchase incentive over the next few years. That’s going to be a major setback to our collective target of 40-50 percent electric vehicle sales by 2030,” he wrote.

New incentives, new problems

Jennifer Safavian, CEO of Autos Drive America, said during the annual Center for Automotive Research Briefing Seminar in Traverse City, Michigan last week, the credits are protectionist. She claims because they are contingent on a steadily increasing percentage of the EV or the EV battery being made with parts or materials sourced in the United States or in countries with which the U.S. has a trade agreement such as USMCA, the replacement for NAFTA, they discriminate against certain automakers.

At least one executive was quick to agree. Robert Young, Toyota Motor North America group vice president purchasing and supplier, said a local supply chain for batteries does not currently exist in North America. “We need the government’s help,” Young said.

Nonetheless, supporters of battery-electric vehicles hailed passage of the Senate bill, which will now return to the U.S. House of Representatives for final consideration later this week. With Democrats holding a slim majority in the House it is expected to pass and be sent forward to the White House for President Joe Biden’s signature.

Quinta Warren, associate director of Sustainability Policy for Consumer Reports said, “This bill has enormous potential to be a game changer for consumers and clean transportation. Our research shows that a growing number of consumers are interested in getting electric vehicles, but many have questions about costs and charging, and this bill would help lower some of those barriers.”

Incentives coming for EVs

The bill contains incentives that would reduce the cost of some electric vehicles, providing consumers with more options to purchase clean vehicles that cost much less to fuel and own than gas-powered vehicles. Plus, it includes funding that could boost the availability of vehicle charging stations in more communities.

A recent CR survey found that 36% of Americans said they would “definitely” or “seriously consider” getting an EV for their next vehicle if they were to purchase or lease one today. Fifty-three percent of Americans said tax rebates or discounts at the time of purchase would encourage them to get an EV.  

The survey found Americans said the biggest barriers to getting an EV were charging logistics (such as when and where to charge the vehicle), how far the vehicle could go on a charge, and the costs involved with buying, owning and maintaining an EV. 

The bill removes the cap on the numbers of electric vehicles a company can sell before the credit expires. Companies such as Tesla and General Motors reached the previous 200,000-unit limit and Ford and Toyota are close. However, the $7,500 credit for a new EV is only available to individual buyers with an income of less than $150,000 or family income of less than $300,000. Customers with larger incomes would not be eligible for the credit.

Used battery-electric vehicles would be eligible for a $4,000 tax credit, helping foster a market for used EVs. The tax credits are limited to individuals with incomes of less than $75,000 or family income of $150,000 for those filing joint returns. All the credits expire in 2032.

As previously mentioned, the credits would not apply to sedans, selling for more than $55,000 and vans, SUVs and pickup trucks with selling prices of more than $80,000.

However, cars would qualify for the full credit only if the batteries were made with materials and components from the U.S. or from countries with which the U.S. has trade agreements such as Mexico and Canada.

Final passage of the Inflation Reduction Act came after a marathon overnight Senate session, the 51-50 vote was strictly along party lines, with all Republicans voting no and all Democrats voting yes.